Keeping in touch – Linking companies and their owners
This month’s interviewee – Naz Sarkar ACIS, the regional CEO for the UK, the Channel Islands, Ireland and Africa at Computershare Investor Services PLC – discusses the way that Chartered Secretaries involved in the share registration business can help develop and deliver a company’s shareholder strategy.
Thanks for talking to us today, can we start with some personal background about yourself – where were you born and brought up?
‘I was born in Yorkshire in the north of the UK to parents who emigrated from India. We moved to London when I was nine, so I grew up in London and I studied political science in Birmingham in the Midlands.
I got into the profession, as many people do, partly by accident. I had a couple of summer jobs and ended up working for the share registration business of Lloyds bank. I joined them on a graduate scheme after I left university and they sponsored me to do the Chartered Secretary exams. At Lloyds I had the benefit of working in many different areas of the share registry business and that gave me the background to develop my career both at Lloyds and subsequently when I joined Computershare.’
How relevant is the Chartered Secretary training for your current work?
‘In the share registry business, the Chartered Secretary qualification is the most relevant qualification for the work we do. The qualification covers things like company law, the law of meetings, voting rights and the management of share registries. Those technical aspects of being a registrar are covered in the syllabus of the company secretarial practice paper. The company secretary has many roles but one of the fundamental roles is ensuring that the legal ownership of the company is properly managed and maintained.
So the Chartered Secretary qualification is the professional qualification of choice for the share registry business and it has been an important part of supporting my career. In addition to the technical aspects of managing share registers, the qualification also covers accounting and legal matters as well as business strategy – so it is a generalist qualification in the broader remit of a company’s governance structures. I wouldn’t be able to fulfil my role properly today, if I didn’t have all those elements.’
What proportion of your staff are Chartered Secretaries?
‘All of our senior relationship managers in our share registration business have done the company secretarial practice paper – which is the one most relevant to their role. The full Chartered Secretary qualification is a very good one, but the ICSA in the UK also supports other certificates and smaller foundation course type qualifications, for example the company secretarial practice paper and the employee share plan paper. We have been fortunate to put a number of people through those types of qualification, as well as supporting those who want to go on to do the full qualification.’
Do you think the Chartered Secretarial qualification opens doors to many different careers – that is, it is not solely focused on the corporate secretarial career path?
‘I studied with a number of people and the emphasis was not on corporate secretaryship alone. Some were following that career path and some were following the share registration path, but there were some who were there without either of those career paths in mind. They liked the mixture of accounting and legal knowledge, together with the business strategy elements, and they too were being sponsored.
Company secretaries see the operation of the business and the board at close hand. They see the formation of the company’s strategy and they see the interpersonal maneuverings around the board at close quarters. They are involved in the legal structures and the financial reporting of the company, so it’s a good general qualification to develop a career.
I have been extremely fortunate to have trained as a Chartered Secretary, I don’t think I could do the role I’m doing without that background. I can call on people for legal and accounting functions, but I need to have a level of understanding to talk to these experts and understand the core issues they face.’
As chains of share ownership become more complex, do you think companies today are in danger of losing touch with their shareholders?
‘Different markets have different models, but the fundamental issue is that good corporate governance relies on companies having a transparent and quick connection to the owners of the company. Those models that put distance and separation between companies and their owners will have problems.
One of the things we try to do is to give people a sense of the alternatives. Computershare operates in most of the markets around the world, so we can point to jurisdictions where that connection works better. I don’t see this as a threat but as an opportunity since there is a common objective around the world of good governance – good transparency in companies’ operations, good disclosure from companies and considered voting from shareholders – these are common objectives everywhere.’
Do you think we will see more convergence globally of corporate governance standards and practices?
‘I think that’s going to be one of the fundamental and longlasting effects of the global crisis actually, I think the crisis has taught us a very basic lesson in the importance of record keeping and legal ownership. The Lehman brothers collapse demonstrated that understanding where legal ownership resides is crucial for when the music stops. If you don’t know who your counterparties are, you don’t know where your exposures are when the music stops.
We’ve been preaching this for some time – difficult and long ownership chains are fundamentally against risk management and good governance. Where there are lots of counterparties between issuers and owners – custodians and sub-custodians – not only does ownership become confused but also the issuance of information between issuers and owners becomes long-winded and prone to incorrect translation and breakdown, and that stops the governance process working effectively. For example, you may have a large investor voting in favour of the company’s position on remuneration completely unaware that the back office has lent the stock – they may be the economic owner but they may no longer control it.’
Another aspect of your work at Computershare which will be of interest to CSj readers is the management of AGMs. I guess that gives you a good snapshot of investor concerns in the jurisdictions you work in, are there any trends you have seen emerging in recent years?
‘It would be a little premature to talk about this season, but over the last few years there has been a clear theme, certainly from retail investors, about remuneration and benefits. Investors want to make sure they get fair treatment and I suspect that will continue this season. In the tough economic conditions we have had over the last few years, company performance has been challenged. Most investors, and certainly retail investors, have become far more vocal about the need for a correlation between performance and pay. The focus has been on the banks, but this year I think we’ll see that in the wider market as well.
Another area of concern is board diversity. Is the voluntary approach working in the UK? Will the government ratchet up the pressure for more diverse representation on company boards? These are certainly investor concerns.’
What do you think company secretaries should be prepared for in the years ahead?
‘Well, there has been a period of subdued economic activity around the world, but I think we have got to look ahead at the recovery phase when it comes. And when it comes, I think we will see the nature of corporate transactions change, requiring a different kind of mindset to complete them. Transactions are becoming increasingly global. Look at the way Kraft took over Cadbury – Kraft shares were tendered as part of the offer to Cadbury stockholders, which meant of course that the UK shareholders ended up owning stock in a US-listed company. I think, as economies recover, we will also see corporate transactions becoming increasingly complex.
These transactions always fall on company secretaries to execute and if you are in the business of having to act upon a board’s decision to implement a transaction, it makes good sense to do your homework while it’s still relatively quiet to see how such a transaction would work. In 2008 and 2009, there were a whole plethora of rights issues – we probably had 20 of them in the UK raising trillions of pounds for companies – but we had seen nothing on that scale of capital raising in the market for 20 years. Between March 2008 and December 2009 I was getting calls at all times of the day from company secretaries saying “please come and see me immediately”.
The next phase will be a different one and no one quite knows what that challenges will be – it could be a surge in crossborder takeovers or capital reorganisations, but company secretaries need to be ready. This is part of our ultimate brief in terms of our vocation, which is be prepared.
Unfortunately, in our business, we often get told about transactions after they have been designed and we just have to make it work. That’s why we need to be prepared for potential problems not on the day the problem arises but far in advance of that. No one wants to be told about a problem at a late stage. The savviest company secretaries are those who involve their share registrar early so they can provide the right advice to their board.
And where there are problems, I think we have to be vigorous in alerting those concerned. I’ve been in boardrooms where the investment bankers and the lawyers are discussing a deal and have had to politely ask “how are you going to get this done?”. The response is usually, “I don’t know, aren’t you going to do that?” Then you need to suggest changes to make the transaction work.
Regulators around the world are seeing this and are increasingly requiring that, before transactions and deals are announced, there is a clear plan for how the execution of the transaction is going to work and that everyone in the chain, including us, are properly contracted with.’
Both the UK and Hong Kong are currently considering moving to a scripless securities market (or dematerialisation as it is known in the UK) – do you think this will be a positive move?
‘I think we are going to see more harmonisation of processes around the globe because, increasingly, investors are all around the world and they invest in companies which are listed, traded and run from all around the world. There has therefore been an increased focus on making sure that we operate in global markets in which everyone understands who is beholden to whom at any one point.
Certainly, the European Union (EU) has issued a number of directives aimed at harmonising its capital markets. These directives are still developing and some will take longer than others to implement, but dematerialisation falls into that context. We want a single market for financial services in Europe and a uniform mechanism for trading and settlement will facilitate that. The EU wants all EU markets to be dematerialised by 2020. That may seem a long way away, and I and many others have argued that we shouldn’t have to wait that long, but we’ll see how the consultations go.’
Is dematerialisation popular with shareholders – will they continue to enjoy similar types and levels of services as they do currently?
‘People’s views on dematerialisation depend on how you present it. Clearly, people like to have a choice of broker, a clear proof of ownership, the right to go to the company’s AGMs and to receive direct communications from the company. However, if you ask: “do you want to enjoy all of those privileges and be able to trade your shares more easily and avoid the difficulty of losing your certificate”, most shareholders want to have both.’
What about shareholders who don’t own a computer and want to retain a physical share certificate?
‘Shareholders can still receive a paper share certificate if that’s what they want – we as the registrar can issue a statement of ownership. Also, dematerialisation does not mean shareholders have to have a computer or a mobile phone. That said, there needs to be a substantial period of warning in the transition to dematerialisation and there is a lot of work to be done.
We operate in many markets where we have seen dematerialisation work really well, in Australia for example. Those lessons could help to avoid some of the mistakes that have been made elsewhere and bring about the advantages of dematerialisation more quickly. But in the UK, the argument has shifted from “are we for or are we against dematerialisation”, to “how are we going to meet this timetable and what is the best model to achieve this”.’
SIDEBAR: Career notes
Naz Sarkar joined Computershare in August 2005. He has responsibility for all business lines across the UK, Channel Islands, Irish and African regions. Prior to joining Computershare, Naz was with Lloyds Registrars for more than 15 years. Naz has over 20 years of market experience; leading teams delivering registry, dealing and employee share plan services. He also has career experience in marketing, hands-on registry and planning and development, including knowledge gained on secondment to the London Stock Exchange. Naz is a fully qualified Chartered Secretary.
SIDEBAR: Going scripless
Going scripless (or ‘dematerialisation’ as it is known in the UK) enables investors to hold their shares electronically instead of taking physical possession of share certificates. This permits a more efficient settlement system by removing the need for paperwork, however in Hong Kong there is an added advantage due to the establishment of the Central Clearing and Settlement System (CCASS). CCASS and the Automatic Order Matching and Execution System (AMS) were introduced in 1993 to enable investors to hold and trade shares electronically, but retail investors were obliged to rely on their broker as the custodian of their shares. Generally, securities traded via the CCASS system are held in the name of HKSCC Nominees Ltd and issuers deal with HKSCC, as the registered owner of their shares, for the transmission of communications and entitlements. The scripless model proposed by the Securities and Futures Commission (SFC), Hong Kong Exchanges and Clearing Ltd (HKEx) and the Federation of Share Registrars Ltd in 2009 aims to provide an alternative for investors to hold and transfer securities electronically in their own names.
More information on Hong Kong’s transition to a scripless securities market is available on the SFC and HKEx websites (www.sfc.hk and www.hkex.com.hk)