Corporate governance and the corporate secretary: a brief history
As a former regulator, HKICS Fellow and an academic, Anthony Neoh FCIS FCS, Senior Counsel, Hong Kong Bar, brings to the corporate secretarial profession a depth of historical knowledge as well as an intimate understanding of the practical challenges faced by corporate secretaries. What better mentor then to welcome newly elected Fellows, Associates and Graduates at the Institute’s annual Convocation. As Guest of Honour at this year’s Convocation, held on 3 October 2013, Neoh spoke movingly about the challenges and opportunities which lie ahead for corporate secretaries in Hong Kong. The summation of his thoughts and advice are included in his preface to this year’s annual Convocation booklet, published here in full.
Until the turn of the 19th into the 20th century, corporate secretaries had held a traditional but important role in the administration of corporations. As every corporation was a legal creation, it was important that there should be an officer whose function it was to ensure that all the relevant requirements are fulfilled in the maintenance of corporate existence and that the powers allotted to the various actors have been properly exercised. That officer was the corporate secretary. This traditional function remains to this day and it is just as important as it was in the 18th century when the corporate form began to assume importance in the first blossoming of international commerce under the banner of mercantilism.
As the industrial revolution developed, it became clear that private capital from individuals or families, great though they may have been in the past such as with the bankers of Florence, would not be sufficient to build the canals, the railroads and the great corporations that were about to emerge. That these creations of the modern era did emerge was due to the development of capital markets, where owners became many and the managers became few and specialised. Some have called the age of the capital markets the ‘age of capitalism’. The age of capitalism is still with us today, with its power for good and its power for evil.
The power for good of capital markets is clear. Capital markets enable great projects to be implemented and great corporations to be created and maintained. The railways of Britain, Europe and the Americas could not have been built but for funds raised in the capital markets. Companies over 100 years old, to name a few include Dutch Shell, ThyssenKrupp AG, British Petroleum, GlaxoSmithKline, Citibank, IBM, China Merchants Bank and Bank of China. They are all household names and have brought profits to their shareholders and marvelous innovations or indispensible services to the world.
The power for evil of capital markets is equally clear. They concentrate power into the hands of the few. While the few can create good, they can also create evil. The tragic accident in Bhopal in India in the 1980s, the oil spill in the Gulf of Mexico three years ago, and the current corruption scandal in China of GlaxoSmithKline are but a few examples of callous conduct on the part of corporate managers. Corporate frauds, such as that of Enron, Worldcom, Parmalat have impoverished their shareholders. Also, the financial crisis of 2008 and the Libor scandal in London have each shown how greed can pervade the practitioner community in the financial services industry. Investors, many of whom had saved for a lifetime working as salaried persons, saw a substantial part of their life savings evaporate before their eyes, powerless, as they watched the evening news on television.
That is why, in the latter part of the 20th century, the world began to wake up to the needs of good corporate governance, not only to create value for shareholders but also to ensure long-term sustainability of the corporation through good citizenship and strategic planning. The foundations for good corporate governance are still being laid as the world grapples with the changing tides of the world’s economy.
Corporate secretaries today therefore fulfill more than just the traditional role of keeping records and ensuring minimum legal compliance. As much more is expected of a corporation participating in the capital markets, it is rare that the corporate secretary is not a senior member of the management team of a corporation. The best corporations aspire to implement the best corporate governance practice. The corporate secretary plays the role of the principal adviser to the board and to management in all aspects of corporate governance, including ensuring that the board and management develop a culture of responsiveness to long-term value and sustainability of the corporation.
That is why the education of the corporate secretary never ends. The literature in best corporate governance practice multiplies exponentially every year and expectations of shareholders, of the public and of governments become increasingly demanding. The corporate secretary must bring to the task the ability to fully comprehend and follow the increasing raft of regulation impacting a corporation, advising the corporation to put into its governance structure a system of compliance and ensuring that the board, as well as management, develop strategic planning aimed at the long-term sustainability of the corporation.
The corporate secretary is therefore far more than a technician but an architect working closely with the chairman of the board in the design and construction of a corporate governance structure that will endure the test of changing times and environments. This requires the corporate secretary to engage in life-long learning in acquiring knowledge not only of the complexities of the capital markets and their regulation, but also the techniques and current thinking in the field of strategic planning as they relate to their corporations.
The profession of the corporate secretary is today both an exciting and exacting profession to enter, but those who enter the profession should, I believe, take on the primary mission to ensure that the corporation creates good and not evil. That is the yardstick by which all systems of corporate governance are to be tested. It is not an excuse that the evil brought about by a corporation is the result of bad management. All bad management comes from bad corporate governance. Creating the best possible corporate governance is the essential gauntlet that is thrown down at the feet of the new entrant poised to enter the portals of the profession. May you courageously pick up this gauntlet and may you all win every battle once you enter these portals!
Anthony Neoh JP, FCIS FCS
Senior Counsel, Hong Kong Bar
More photos of this year’s annual Convocation are available in Institute News (see pages 42-43).
Anthony Neoh is a former Chairman of the Hong Kong Securities and Futures Commission and former Chief Adviser of the China Securities Regulatory Commission. He is a practicising barrister and an academic involved in research in legal and financial history and current issues in regulation and the governance of financial markets and institutions. He frequently gives lectures and actively participates in seminars in the PRC, HKSAR and internationally, on his research interests.