The Institute’s latest research report on the roles and responsibilities of company secretaries in Hong Kong’s listed companies, published last month, highlights the growing demands on, and opportunities for, company secretaries in Hong Kong and mainland China
Being a company secretary in the 19th century, when the formal role was first established, must have been a fairly relaxed posting. Your chief responsibilities would have been organising meetings and keeping company records. You would not have been expected to advise the board on tough corporate governance and ethical dilemmas, or to attend seminars on corporate social responsibility, sustainability and antimoney laundering compliance.
Things have, to put it mildly, changed. Company secretaries’ in trays these days can include a wide range of duties depending on the skills and qualifications of the individual concerned. Most often this will include, in addition to organising meetings and keeping records – advising directors on corporate governance; looking after the information needs of board members; facilitating induction and director training; ensuring communication flows between the board and management; looking after regulatory compliance; organising annual meetings; preparing the annual report; publishing results; and liaising with the stock exchange and media. As you might expect, to cope with this rather dramatic escalation in duties, company secretarial departments have got bigger, qualification requirements for company secretaries have become tougher and the company secretary has gone from being a ‘clerk’ of the company to being a board-level officer of the company.
Readers of this journal will be familiar with the historical evolution of the company secretary role sketched above, but where are we now in the second decade of the 21st century? And, perhaps more pertinently, where are we heading? The latest research carried out by the Hong Kong Institute of Chartered Secretaries into the roles and responsibilities of company secretaries in Hong Kong’s listed companies (see ‘The Significance of the Company Secretary in Hong Kong Listed Companies’ on the HKICS website: www.hkics.org.hk) offers some answers.
The three major themes of the research report are that:
1. the company secretarial role has continued to evolve towards a greater responsibility for corporate governance
2. the responsibilities of company secretaries have increased and become more complex, and
3. company secretarial departments have grown considerably.
The report’s findings
1. The governance role
The research report finds that 95% of company secretaries in Hong Kong and 93% of those in mainland China advise their directors on good corporate governance. The report points out, however, that the importance attached to this advisory role still depends on the standing of company secretaries and the attitude of directors, particularly the chairman, towards them.
Moreover, while this governance advisory role has become a headline part of the services provided by company secretaries, it has certainly not, at least in terms of the time spent on it, eclipsed the role’s other core functions. The report found that on average company secretaries spend:
• 33% of their time on regulatory compliance
• 26% on board and committee services
• 15% on advisory roles, and
• 15% on shareholder communication.
The remaining 11% of company secretaries’ time is spent on non-routine work such as mergers and acquisitions, joint ventures and other projects.
Nevertheless, there can be no doubt that company secretaries have become even more closely associated with maintaining good corporate governance standards. The report puts this into the context of the increased emphasis and rising expectations, particularly since the global financial crisis, on companies’ governance standards. In the wake of the crisis, regulators have increasingly been seeking to exploit the opportunities of the company secretary role to enhance governance and board effectiveness. This has been seen in Hong Kong, for example, with the revisions this year to the Corporate Governance Code and the stock exchange listing rules which have clarified the role of the company secretaries in corporate governance and board support. These changes have also raised the bar with regard to the qualifications, requisite knowledge and experience of company secretaries of listed companies.
The report also puts these developments into the context of what is happening overseas. It points out for example that many corporate secretaries around the world are now acting as de facto chief governance officers. In the US, many corporate secretaries have acquired ‘Chief Governance Officer’ as their title.
‘New horizons have opened up new opportunities for the profession, which if we are honest, have not always been seized or immediately recognised. This partly stems from the traditional view of the company secretary as being a back office function, rather than a board level advisory one,’ commented Edith Shih FCIS FCS(PE), HKICS President, in her foreword to the 2012 report. ‘We must work towards cementing and codifying our position so that company secretaries are de facto chief governance officers. In this way we can continue to grow.’
2. Growing responsibilities
The Institute launched its series of research reports on the role of company secretaries in Hong Kong’s listed companies in 1995. That first study was followed by a second report in 2001 and the current report has brought the research up to date. These three research reports are a valuable snapshot of the evolution of the company secretary role in Hong Kong over the last 17 years, and perhaps the most obvious trend over that period has been that the responsibilities of company secretaries have increased and become more complex.
‘The research has shown growth in the scale, significance and success of company secretarial activities in both Hong Kong and mainland H-share listed companies,’ the report states. ‘The company secretary faces growing demands, new expectations, and increasing sophistication. The three HKICS studies into the work of the company secretary have shown, over the years, how the profession has faced new challenges, recognised changing expectations, and responded to new opportunities.’
Once again, the report puts these developments into context. Listed companies, particularly the China-based companies now listed in Hong Kong, have increased in size and complexity dramatically over the research period. The Hong Kong market now lists over 1,500 companies with a combined market capitalisation of some HK$20 trillion (US$2.58 trillion). The China H-share market has increased rapidly over the period. The Hong Kong exchange now lists a number of H-share heavyweights such as PetroChina, Industrial and Commercial Bank of China and China Mobile.
3. Bigger is better?
As you might expect with the changes highlighted above, company secretarial departments are getting bigger. The report finds that the average size of company secretarial departments in Hong Kongbased companies was seven and in H-share companies six. Large companies reported an average size of company secretarial departments of 16, medium-sized companies five, and small companies four.
Moreover the general consensus among respondent companies is that they will need to expand their company secretarial departments further in the years ahead. Asked whether they will be likely to expand their secretarial departments in the next 12-18 months, 33% of the Hong Kong-based companies and 63% of the H-share companies said ‘yes’. Such expansion plans will inevitably increase the costs of the company secretarial function. This will add to the importance for practitioners to demonstrate that they are adding real, tangible value to their companies, comments Edith Shih in her foreword to the report. ‘Rather than being seen as a cost centre, secretarial departments should be seen as something that creates value,’ she writes.
Where are we heading?
While the trends described above are reflected clearly in the research data, it is harder, of course, to judge how the role of the company secretary will evolve in the years ahead.
Will we see the gradual evolution of the ‘Company Secretary’ into the ‘Chief Governance Officer’ as seems to be happening in the US? Or, in another scenario explored by the report, will we see the emergence of the ‘Company Secretarial Officer’ (CSO), working alongside the Chairman, the CEO, the CFO, and the COO, as a member of senior management? This, the report confirms, is the current set up on the mainland where board secretaries are usually members of top management. Some 89% of the H-share companies in the survey see the board secretary as a member of top management, while in Hong Kong-based companies the figure was 68%. Moreover, involvement in business and strategic decisions were reported to be twice as high in mainland companies (75%) than in Hong Kong (36%).
The report notes signs of a shift towards a senior management role for the company secretary in Hong Kong. The increased reliance on the company secretary function has given many company secretaries the opportunity to contribute more to top management activities. Some 23% of the respondents to the research hold senior management responsibilities in addition to their company secretarial role, such as accounting, administration, finance, company law, insurance, and internal control positions. Some were also directors of their companies.
This trend, however, clearly has major implications for the company secretarial function. Advising on and facilitating decisions is a long way from actually taking those decisions and accepting liability for those decisions. Any major departure from the current advisory role of the company secretary would need to be thoroughly considered by the profession.
‘The Significance of the Company Secretary in Hong Kong Listed Companies’, was written by Bob Tricker, author and Honorary Professor at the Open University of Hong Kong and Hong Kong Baptist University. The report, together with the previous two reports in the series, is available on the HKICS website (www.hkics.org.hk) under ‘Publications/ Research Papers’
The Significance of the Company Secretary in Hong Kong Listed Companies, the Institute’s third research project on this topic was carried out under the direction of the Institute’s Technical and Research Director, Mohan Datwani. In March 2012, a survey questionnaire was sent by e-mail to the company secretaries of all listed companies in Hong Kong. Feedback was received online. Of the 1,550 listed companies contacted, 426 responses were received, a response rate overall of 27.5%. The Catalyst research agency provided the statistical analysis. Professor Bob Tricker, author and Honorary Professor at the Open University of Hong Kong and Hong Kong Baptist University, wrote the report based on the questionnaire responses and the research data summarised by Catalyst.