A recently concluded Market Misconduct Tribunal hearing highlighted the essential responsibilities and duties of company secretaries in Hong Kong. Mike Scales FCS FCIS, former Chairman of the Institute of Chartered Secretaries and Administrators in Hong Kong Ltd, takes a look at the lessons that should be learned from this case.
In March 2015, a Market Misconduct Tribunal (the Tribunal) hearing was concluded which had looked into dealings in the shares of Asia Telemedia Ltd (now known as Reorient Group Ltd) in 2007. No market misconduct was identified; however, in the course of the proceedings, the Tribunal commented on the expected roles and duties of Asia Telemedia’s company secretary (who is a Chartered Secretary).
This article is not about the dealings in shares and is not intended to comment on the actions of the company secretary. However, HKICS members need to be aware of the comments made by the chairman of the Tribunal, Justice Hartmann, which are relevant in general to the duties expected of a company secretary of a listed company.
Justice Hartmann made reference to the HKICS publication The Essential Company Secretary – in particular its requirement for company secretaries to play an active role in promoting good governance. Whilst the Tribunal recognised that the company secretary’s powers to make operational decisions may have been limited:
- “her ability (and obligation) to give advice to the chairman and the board to ensure that the company complied with all the rules of good corporate governance was central to her responsibilities; and
- advising on matters of good governance would have included advising on all matters relevant to the listing rules, and this in turn would have encompassed advising the chairman and the board on matters that should from time to time be reported to the market: such as matters that may constitute price-sensitive information.”
HKICS members who are practicing company secretaries may want to take particular note of these comments, and re-read The Essential Company Secretary, which is available from the HKICS website (www.hkics.org.hk).
A fuller description of the comments made about the actions of the Asia Telemedia company secretary is set out below. The quotes are extracted from the report of the Tribunal into dealings in the shares of Asia Telemedia Ltd on and between 5 February 2007 and 6 June 2007. The full report is available on the Tribunal’s website: www.mmt.gov.hk/eng/reports/reports.htm.
At one of the Tribunal hearings, the company secretary said that her duties with the company ‘…included administrative duties such as preparing corporate governance reports (since 2006), annual returns and monthly returns, coordinating the printing of corporate documents such as announcements, circulars and annual reports, and organising shareholders’ meetings’. She said that she ‘also acted as an intermediary between the company’s board of directors and the company’s external advisers such as lawyers by relaying the instructions from the directors to the external advisers and relaying information and advice supplied by such external advisers to the board of directors’.
However she qualified that by saying that, as the company secretary: ‘I had no power, nor was it my duty to decide how to respond to statutory demands or how to deal with the company’s debts’.
The Tribunal responded that: ‘While this statement may be accurate on the surface, it is in reality a reduced (and thereby artificial) description of the true nature and extent of her duties and responsibilities as company secretary of Asia Telemedia. While [she] may have had no ultimate power to make decisions concerning the operations of the company, that power being reserved to the chairman and the board of directors, nevertheless she was a member of senior management with a duty to advise [the chairman] and the board on all matters of good governance including compliance with statutory and regulatory rules applying to Hong Kong listed corporations’.
In this regard, the Tribunal was referred to the October 2013 edition of HKICS publication The Essential Company Secretary. Although published after the employment period of the Asia Telemedia company secretary, the Tribunal stated that it had no reason to doubt that the broad duties outlined in the publication marked the essential role of company secretaries well before the date of publication.
By way of an overview, the publication states that a company secretary is regarded as both an officer and part of the senior management team, and at the centre of the board’s decision-making process. Moreover, company secretaries are expected to use their influence to promote good corporate governance. Accepting that publications of this nature tend to set parameters of perfection, the broad fact remains that, while the Asia Telemedia company secretary’s powers to make operational decisions may have been limited, clearly her ability (and obligation) to give advice to the chairman and the board to ensure that the company complied with all the rules of good corporate governance was central to her responsibilities.
Those, like the Asia Telemedia company secretary, who advise on the correct course to be taken may not exercise full decision making power but they guide it. In this case, the company secretary’s responsibility to advise on matters of good governance would have been all the more important because the chairman was a Mainland businessman who could not be expected to be as proficient in the dynamics of Hong Kong rules of good governance as a businessman with long experience of working in Hong Kong. Asia Telemedia being a listed company, advising on matters of good governance would also have included advising on all matters relevant to the listing rules and this in turn would have encompassed advising the chairman and the board on matters that should from time to time be reported to the market: such as matters that may constitute price-sensitive information.
Mike Scales FCS FCIS
Mike Scales is Past Chairman of The Institute of Chartered Secretaries and Administrators in Hong Kong Ltd (the precursor of HKICS) and co-author of the 2013 edition of ‘The Essential Company Secretary’.
The Market Misconduct Tribunal report is available on the Tribunal’s website: www.mmt.gov.hk/eng/reports/reports.htm
SIDEBAR: Essential Reading
The Essential Company Secretary is a one-stop guide to the essential responsibilities and duties of company secretaries in Hong Kong. Compliance with guide is required of all members of the HKICS for both private and listed companies. The Institute deems the guide to be a description of the minimum standards of professional and ethical conduct for its members that are applicable across the board.
The most consistent theme of the guide is the need for HKICS members to actively promote good corporate governance practices and discharge their duties with a high degree of integrity. It points out that the reputation, both of the profession and the HKICS, ‘stands and falls on the individual and collective efforts of its members in performing their duties with integrity, skill and dedication’.
The guide emphasises that company secretaries cannot afford to ignore any cases of non-compliance with legislation or regulation that come to their attention, even if the directors have purported to make someone else responsible for those matters. The company secretary has a duty to monitor these matters, regardless of the terms of his or her employment, and should draw such cases to the attention of the directors and advise them of their own and the company’s duties and obligations.
The guide also specifically reminds company secretaries of their responsibilities regarding the disclosure of inside information. Since January 2013, company secretaries have been included in the definition of the company officers who are liable under the Securities and Futures Ordinance (SFO) if their intentional, reckless or negligent conduct results in a breach of the SFO disclosure requirements.
Appendix III of the guide reminds company secretaries of the need to:
- have procedures in place to identify, monitor and disclose inside information
- keep directors and senior management reminded of their continuous disclosure obligations, and
- properly document decisions on the disclosure of inside information and non-disclosure thereof based on safe harbours.
‘The Essential Company Secretary’ is available on the HKICS website (www.hkics.org.hk) under ‘publications/ guidelines’.