Corporate governance and the board secretary
Yu Tengqun, Board Secretary, General Counsel and Press Spokesman of China Railway Group Ltd, shares his views on the role of the board secretary in corporate governance.
In November 2006, I was appointed Board Secretary of China Railway Engineering Corporation. In September 2007, I took up the position of Board Secretary of China Railway Group Ltd. These experiences have given me some insights into the role of the board secretary in corporate governance.
The evolution of the board secretary role
The concept of the board secretary originated in the West. The board secretary role gradually developed after the emergence of the board of directors. In common law countries like the UK and the US, this role is usually called the ‘company secretary’. I think the key distinction between the board secretary and the company secretary is that, as their names suggest, the former was originally positioned to be responsible to the board of directors, while the latter was positioned to be responsible to the company as well.
The essence of corporate governance is the diversification of control of the company. In the operation of the company, the intricate and complex relationships among shareholders, managers, the government and the company has to be balanced through the diversification of power and the refinement of the governance structure of the company. The company secretary is a position created to balance these relationships. After several centuries of development, the board secretary role has been introduced into countries adopting the continental legal system and the legal status, nature and duties of the board secretary have been continuously refined. The status of the board secretary as a member of senior management is now well recognised in law, and the board secretary has become an indispensable part of the corporate governance structure and the gatekeeper of corporate governance.
The Companies Ordinance in Hong Kong requires that ‘a company must have a company secretary’. Under the Commercial Code of Macau, the company secretary, shareholders, directors and administrators are the four key organs of a company, and the company secretary can be elected by shareholders at a meeting without having to be placed under the board of directors. The Companies Law of China, as amended in 2005, clarifies the duties of the board secretary and stipulates that the board secretary is a senior manager of a listed company. In 2015, the Shanghai Stock Exchange promulgated the revised Measures for the Regulation of Board Secretaries of Listed Companies which specifies that the board secretary is responsible not only to the board of directors but also to the company and relevant parties like the regulatory authorities.
Key duties of the board secretary
In building a practical, efficient and innovative board of directors, the board secretary takes on important governance duties and a gatekeeping role. Key duties are outlined below.
1. Establishing the official position of the Communist Party in the corporate governance structure. The significance of establishing the official position of the Communist Party in the corporate governance structure must be fully recognised. The areas of duty of the Party organisation, the board of directors and other organs of the company, as well as the effective interface between various procedures, must be clearly defined.
2. Setting up the governance structure. The governance structure is the basis of operation of the board of directors. As the promoter of corporate governance in listed companies and the facilitator of board operations, the board secretary plays an active role in proposing the composition of board committees such as audit committee, remuneration and assessment committee and nomination committee; facilitating communication between the board and the committees; assisting the committees in fulfilling their roles; and coordinating the work of the committees in support of the organisation.
3. Drawing up rules and regulations. A good system of rules and regulations safeguards the operation of the board of directors. Board secretaries should help the board put in place a sound governance framework and related rules and regulations. They should keep abreast of corporate governance developments, and actively raise suggestions to turn new requirements, such as those of the State Council State-owned Assets Supervision and Administration Commission and domestic and overseas securities regulatory authorities, into internal requirements of the company in a timely manner.
4. Promoting proper operations. Ensuring proper operations is one of the core elements of building a properly functioning board of directors. The board secretary should actively raise proposals on compliance to the board of directors and facilitate lawful performance of the board’s functions. Propriety is the prime consideration, whether during the planning, execution or evaluation stages. The board secretary should learn about the business and mode of operation of the board and adhere to propriety in board operations. Efforts must be made to ensure proper operations by putting in place sound systems and stringent procedures with a view to facilitating sound decisions.
5. Promoting sound decisions. Reaching sound decisions is a key objective of building a properly functioning board of directors. Sound decisions must be made in respect of the four major functions of the board, namely setting strategies, managing the team, deliberating on major issues, and controlling risks. Key factors include the personal attributes of directors (experience, insight and judgment), decision making processes (such as procedures and preparation) and monitoring and incentive systems (such as evaluation and rewards).
6. Implementing and monitoring implementation of board decisions. The sound decisions of the board have to be realised through implementation. Further to facilitating sound decisions and proper functioning of the board, emphasis should be laid on the execution of decisions, strengthening the monitoring of implementation and ensuring the quality of implementation. This also amounts to an assessment of the decisions of the board and helps improve the quality of decisions.
7. Facilitating delegation by the board. A prudent and efficient system of delegation can improve the efficiency of the board’s decisions and encourage the delegatees to proactively manage the company, thereby further enhancing the effectiveness of the board. Efforts should be made towards identifying appropriate delegatees; determining an appropriate scope of delegation; ensuring the proper exercise of delegated powers; monitoring the exercise of delegated powers; and ensuring that properly exercised delegation is not nullified.
8. Promoting communication and coordination. Availability of information to the board is the basis of sound decisions. The board secretary should assist directors in building an effective communication system to ensure the proper flow of information. Proper communication among the board, committees, the management team and the board of supervisors, as well as between internal and external directors, is critical to help directors obtain comprehensive, objective and accurate information to facilitate decisions.
9. Aligning the governance practices of group companies. Group companies are often multi-layered companies co-existing in the market, each operating on its own. Aligning the practices of group companies is another important concern of the board of directors. The board secretary should actively facilitate the work of the representative of the dominant shareholder in aligning systems, strategies and governance standards of group companies.
10. Supporting and safeguarding external (independent) directors in fulfilling their duties. External (independent) directors are crucial to the proper functioning of the board of directors. Adequate support and safeguards must be provided to external (independent) directors in fulfilling their duties. The board secretary should determine the scope of support and safeguards in this respect and raise the efficiency and quality of the support and safeguards.
11. Ensuring proper information disclosure. The listing rules stipulate that the board secretary is directly responsible for the information disclosure and investor management of a company. The multiple layers of management and broad scope of business of a company pose challenges to the work on disclosure of information. The board secretary should strictly adhere to legal requirements and ensure the timeliness and quality of disclosure.
12. Properly managing investor relations. In terms of investor relations management, the board secretary should be proactive and innovative in building communication channels. With integrity, patience and understanding, the board secretary should properly organise results announcements, news releases, roadshows and visits by institutional investors to maintain an interactive relationship with investors. The views of the market should be fed back to the production and operational teams, and focused market reports should be compiled to report the concerns of and key information in the capital market to the management and relevant departments of the company.
13. Facilitating capital financing activities. Capital financing is an important duty of the board of directors of a listed company. The board secretary should take the management of market capitalisation as an important task, and facilitate re-financing, acquisitions, re-organisations and other capital financing matters.
14. Building the culture of the board of directors. Good culture of the board of directors is the cornerstone of good governance and further development of a company. Building a good corporate governance culture is of utmost importance. The essence of governance culture is to ensure checks and balances, democracy, scientific operations, propriety, effectiveness and innovation. The dominant shareholder representative should be loyal and diligent.
15. Establishing the daily business process of the board of directors. The board secretary should attach great importance to the establishment of the daily business process of the board of directors. This is to safeguard compliant and proper operations of the board. In forming the team, attention should be paid to age and skills mix in order to build a cohesive and dedicated work team that excels in capability, quality and style and emphasises rules and procedures.
This will build a foundation for the compliant and proper operations of the board of directors.
Yu Tengqun, Board Secretary, General Counsel and Press Spokesman
China Railway Group Ltd
SIDEBAR: About the author
Yu Tengqun is currently Board Secretary, General Counsel and spokesperson of China Railway Group Ltd (CREC). In December 2007, CREC became the first in China to join the A+H share capital markets through the ‘first A then H’ mode. It is a large construction corporation with businesses in infrastructure, prospecting and design, manufacture of equipment and parts, property development, resource mining and capital financing. It has received commendations from regulators and has been granted awards for its board of directors, investor relations, corporate governance and information disclosure. Mr Yu has been named among the top 10 counsels to state-owned enterprises; the top 10 general counsels to state-owned enterprises; best board secretary to listed companies in China; Golden Board Secretary by New Fortune magazine; and best board secretary in the Asia-Pacific region.
于腾群先生现任中国中铁股份有限公司 (以下简称“中国中铁”) 董事会秘书、总法律顾问、新闻发言人。中国中铁于2007年12月以国内首例“先A后H”模式成功登陆A股与H股资本市场，是一个集基建建设、勘察设计、工程设备和零部件制造、房地产开发、资源矿产开发、金融投资为一体的多功能特大型建设集团。2017年在世界企业500强中排名第55位，曾因其董事会、投资者关系、公司治理及信息披露而获得资本市场监管机构的表扬，获颁多个奖项。于先生先后获得中央企业十佳法律顾问、中央企业十佳总法律顾问、中国上市公司最佳董秘、《新财富》金牌董秘、亚太地区最佳董秘等多项荣誉。