Governance Bites #85: Company secretary in a listed company, with David Callanan.

In this episode, Mark Banicevich talks to David Callanan about being a company secretary in a listed company. He asks about what the role of company secretary involves, and how it differs for listed companies and private companies. They also discuss closely held and widely dispersed ownership in private companies. David outlines the duty of disclosure, and how that impacts the company secretary. They discuss the interaction between the company secretary and the chair, the board, and the CEO. David also shares advice for new company secretaries. 
David Callanan General Manager of Corporate Trustee Services at Public Trust. He is a Fellow of the Governance Institute of Australia, and has been Chief Risk Officer at Public Trust, Tower Insurance, and RACQ Insurance in Australia (often including Company Secretary). He spent 4 years at PwC in Australia and London, and worked for the Citibank-State Street joint venture CitiStreet Australia for 6 years prior to that. 
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Transcript

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Hi there, my name is David Callanan. I’m the General Manager of Corporate Trustee Services [at Public Trust]. I’m a Fellow of the Governance Institute of Australia and really passionate about all things governance. Here today to talk to Mark about the role of governance in listed entities. Hi, welcome to Governance Bites. My name is Mark Banicevich, and as you just heard, I get the opportunity to spend some more time with David Callanan. David, thank you very much for your time. Thank you. It’s great to be back. Really appreciate this. And the topic du jour is around being a company secretary, particularly in a listed company, relative to an unlisted company, and what those differences are. So can I start by asking you what actually is the role of the company secretary? Yeah. Well, it’s actually quite multifaceted. I mean, it should be very simple, because really, the foundations of a company secretary is “secretary”, right. It’s like, “Do the paperwork.” And you’re really there to support the board as they deliver all of the varied functions of a board. Now, in reality, it’s much more diverse than that. And in my experience, a good company secretary can set a board up for success, can make a real difference. And so I guess, through my studies previously in Australia, and the work I did with the Governance Institute there, and then my hands-on experience in a number of roles, either as a board [member] or as a company secretary, I’ve seen the role that that can play in a boardroom. We sit here in a in a boardroom in Auckland, and really just to ensure the, you know, effective operations of what is a hugely important role, function, in a board, where they’re, you know, empowered with the direction and performance of an entity, it’s very hard for a board to do that on their own without great support. And so, and in fact, a really good company secretary will even identify some of the things that aren’t being discussed in the room. I’ve recently had a had a great experience where I saw a company secretary raise a probity question for the chair, and the chair had to pivot immediately, said,“Actually, that is absolutely right. So, you know,"in the middle of a procurement process, we should be mindful of, you know, good probity.” And it was a very specific technical thing, but actually, completely pivoted the conversation and made us step back and reflect on the process we were going through. And so, again, a good company secretary is sort of eyes and ears from a compliance perspective, while also making sure good administrative and operational hygiene, I guess, is maintained. So what are some of the activities that a the company secretary would do outside the boardroom to prepare for the board? Yeah. Yeah, so a company secretary will often have a legal background, that seems to be, or compliance background, and certainly for me, that was the case. And it also will often have quite a senior role in the leadership team. So they bring, I guess, a technical experience or technical expertise, I should say, to the table. But also, they need to bring a commercial experience. They need to understand how a business operates, so that they can get it within the broader context and bring that into the room. So what happens outside the room? A lot of conversations. You need to understand the business. You've got to have done your homework. You need to understand the legal context, and legal includes regulatory, certainly a legislative context. It includes understanding the constitution of the entity or the founding documentation. It also means you’ve got, as I said, you’ve got to just understand the business. What are the key contractual arrangements that exist? Who are the key service providers that operate within that ecosystem? What’s the governance structure internally within the organisation? You know, committees, delegations, you know, those financial structures, as well. How are decisions made internally? So a good company secretary will, as I as I sort of alluded to earlier, make that administrative stuff work really well, which is make sure the papers are coming together, make sure that the board has everything they need to run an effective agenda, make sure that the chair, you know, is ready when they come into the meeting, certainly. But just as importantly, they’re a fulcrum, they’re a facilitator between the board and management. And you can’t just leave the chief executive to manage that entire relationship. And so they become very much the right-hand, left-hand person for the chair and the board in terms of that facilitation outside of the board meeting. That happens in between meetings, as well. So how does the board secretary then interact with the chief executive, given that the chief executive has a key role to play, reporting to the board and a strong relationship with the board chair that happens in a more formal way? Well, I mean, I guess, for me anyway, I would sit alongside the chief executive in a lot of the conversations with the chair. Certainly, you’re coming to every board meeting, and so you have that unique exposure to what the board’s doing and what they’re thinking, and the discussions that they’re having along the way. Now, that’s a responsibility. There’s a, you know, obviously, there’s a confidentiality obligation that comes with that. But you’re in the tent, right. And so you’re able to have those conversations with the chief executive that maybe some of the other of the leadership team aren’t even able to have. So I certainly got a lot from, I guess, feeling like that person for the chief executive, that offsider. And as a result, I’ve often been asked to step up into that acting chief executive role, because unlike other executives, you have this kind of unbiased lens, and you’ve seen it play out in the boardroom. Right. So I guess I also have that experience, having been a chief risk officer in a number of organisations, and there’s similarities there. So regardless of listed or not, the, I guess, creation of the Chief Risk Officer role and the increasing importance of it over the years has seen it become kind of very similar to the role of a, from a governance perspective, of a company secretary. And certainly, where I’ve had that role, they’ve become, they’ve overlapped, and become very concurrent. Yes. So I guess you, yeah, you end up working very closely with the chief executive. Yes, in terms of discussing risks, but also as a sounding board for some stuff. Right. Now, in the boardroom, you’ll have the directors sitting around the table. The chief executive will be in there reporting. You may have the odd guest come in. And then, of course, the company secretary will be there. And, as you say, as part of that role, they’ll be taking minutes, generally, unless you’ve got a separate minute secretary. There’s also the case of board-only time. The chief executive, of course, and other non-board members would leave. If the board secretary is the person taking the minutes,- Yep. - or company secretary is taking the minutes, are they involved from that board-only time, or do they tend to leave as well? It depends on the chair, to be honest. Depends. So usually, they will also leave the room, but there will always be a debrief. So there is always something to be captured for the minutes. Yes, exactly. That’s really important, because, yeah, I mean, you’ve got other stakeholders that that are not in the room that need to be informed of what’s the nature of conversations. Right. So I mean, a simple example is the chief executive’s performance and remuneration process, right. So the board naturally wants to have an in-camera conversation about,“Where’s the chief executive?” Now one of the chief executive’s direct reports doesn’t need to be in the room to hear that conversation. So I think that’s fair, right. Absolutely. It's fair and appropriate. However, there is a minute that needs to be, that needs to arise from, a record, I should say, in the minutes that needs to arise from that conversation. And so that’s where the chair and the company secretary need to coalesce after the meeting and say,“Okay, what was the nature of the conversation, and what was the outcome?” Because you don’t just have in-camera sessions for the hell of it. They’re there for a reason, and it is part of good governance in itself. So it’s not something to shy away from necessarily. Yeah, absolutely. How then does the company secretary role differ if the company is listed? Okay, so as a listed entity, you’ve got extensive rules, basically. So the bar is very high, in particular, when it comes to disclosure. And the continuous disclosure obligation is a significant one and a serious one. And that actually takes a quite a lot of management time. You’d be surprised how much conversation around, “Is this something that needs to be disclosed?” occurs, and that certainly in a boardroom, but also outside of the boardroom, is this something that needs to go to the board, and should it therefore also be considered from a continuous disclosure perspective? And I can’t under, I can’t, - Emphasise enough. - yeah, you can’t underestimate how much time is spent on that. So when I was at Tower, it’s no secret that we were going through a sort of a merger and acquisition phase where there were multiple takeover attempts on the entity, and the commercial sensitivity of those activities is extreme. We went through an extensive Commerce Commission process for one of those acquisitions which didn’t proceed as a result of the Commerce Commission’s process. Now, all through that, you have got shareholders that appropriately need to be informed because the value of their investment is changing over time. So that’s a really serious obligation. And so, you know, you’ll be speaking to investment banks about what’s the value of this organisation at a very, you know, top-level view. And then, and the same breath, you’ll be walking, you walk out of that conversation, and you’ll walk into a conversation with a major shareholder from an investor relations perspective, and you’re having a very different conversation about what's the value of the business. And so there’s an obligation on management and the board, who are in the tent on certain activities, to ensure that there is fair distribution of intel [intelligence], but information for investors in that environment. And so it’s very, very challenging. And so, yeah, those listing rules exist for all the right reasons, but it does create a lot of workload, particularly for a company secretary function that effectively has to facilitate this. And a lot of late nights working on, you know, sitting down with the external comms advisors, internal comms, investor relations, strategy functions, and the executive team, working on press releases- Yes. - and stock market releases that, you know, literally into the wee hours of the morning, knowing that at 7:00[a.m.], you’ve got an announcement that needs to go live. And so it’s those nights that, you know, I get, I enjoyed in some ways, but also, you know, that they’ll be the death of me, because- You're quite pleased they're in the past. - Well, yeah, I am, actually, but over three, four years in that role, that just seemed to be always on. And so listed entities, they have that exposure where you’re always having to engage with investors. They need to be well-informed, and it’s not just the AGM [Annual General Meeting], it’s not just the annual report. There’s this continuous obligation. And we’ve got a similar obligation at Public Trust, as an Autonomous Crown Entity, the "no surprises" approach for our Responsible Minister. But in the listed environment, those rules, you know, that’s very, very important. Right, right. How much of those, you know, working in the wee hours, was because of what Tower was going through at the time? Yeah. So in a BAU [business-as-usual] situation, business-as-usual scenario, would the hours be a little bit more manageable, or...? Yeah, that’s probably true, Mark, but I think there is still significant time, and every one of those disclosure measures, I know, and I had a team, I had a governance team of four staff working for me at Tower, given the volume. And that wasn’t because of these, you know, one-off merger and acquisition activities. This is that, my legal team was just as big as my governance team, because there is just so much going on in terms of disclosure, investor relations, etc. So, whereas I think about now at Public Trust, you know, the core, the company secretary function is just part of what our legal team delivers. So those obligations are significantly higher than for other entities. If you’re going to list, if you’re going to go through an IPO [initial public offer] process, I think that’s something, go in eyes wide open, because the bar is very high in terms of compliance, and that governance function is going to need to be effectively resourced to deliver. Now, as you say, the listing rules are very explicit about what those obligations are. There can be, of course, unlisted companies that have quite diverse shareholdings. So how do the obligations differ if you are on the board of an entity that has a diverse unlisted shareholding, share base? Well, I think there’s, the obligations are similar in many ways, because, you know, you’ve got to look after shareholder interests. That’s part of the responsibilities of the board. That’s why you’re there on the board is, you know, to drive shareholder outcomes. But it’s just, it’s not as explicit, is it. And the underlying expectation around good conduct and creating a good governance culture, I think is the same regardless of what kind of entity you are. But certainly, if you’re going to get listed, that bar is so much higher. And certainly, you should expect to be quite transparent in terms of what’s happening for the business, because if something is materially changed, then those investors are able to make a decision in a very short term. In a private environment, there’s an expectation that that short-term thinking is, you know, the materiality is probably a little bit larger, - Yes. - that expectation versus, you know, listed entity, where, to be honest, that threshold is quite low. Yes. I would also think that in an unlisted entity, you’ve got the liquidity issue of selling your shares, whereas in a listed company, you can drop them in a heartbeat, right. Yeah, yeah, that’s true. Yeah. Right. So while governance is very important for all entities, when you have a separation of ownership from day-to-day management, that’s when that board of directors and the disclosure to shareholders, the information transfer, become so very important. And as you say, the listing rules are very strict in terms of, I expect, your record-keeping as a, your company secretary would have to be immaculate for all that sort of stuff, as well. Yeah, and also think about even just the Privacy Act now, and if you’re a government entity like we are, then the Office of Information access requests just means you have to be ready at all times for that information to need to be made available to somebody. That’s just the new norm now. So just the point really being, you can’t get away from that. It’s about how you set yourselves up for that. So you need the resources, you need the expertise, and, you know, I would always advocate for having, you know, highly competent and invest in your in your corporate, your company secretary function, that governance function, because you might not think you need them, but when, you need them when you really need them, and so you’re better to be ready and able to respond rather than trying to react. And I think there’s an assumption that you can just, you know, get by on the smell of an oily rag, but actually, you’ll run a more effective business if you invest in that governance function. Right. David, well, I guess one final question for you then. What advice would you give to somebody who’s starting a role as a company secretary? Great question. When we last spoke about someone starting a role as a director, I talked about really just doing your homework, and probably that’s the case here, too. I think if you’re stepping into that role, you often don’t have the luxury of choosing who the board members are going to be. You don’t get to control who they’re going to be, certainly, or the or who the chair is. But you need to very quickly establish a rapport with those individuals. And that doesn’t mean you go out for dinner with them or that, you know, have endless coffees, or whatever. But when you get those opportunities, you need to engage in a way that builds that trust. Because you’ll be in in the room, you’re going to be in the room with the board, as I said before, you become a bit of a right-hand person to the chief executive. So obviously, with the chief executive, you need to work on that relationship, as well. So I would start there. I think you need to obviously do your homework, understand the business, which I’d expect any professional to do anyway. But with this role in particular, you need to be working on that relationship and the trust. And that means, as I said, having the confidence, if you see something that you’re not sure if it’s being covered, then, you know, you need a trusted base to feel you can put your hand up and say,“Oh, here’s something that I’ve seen that you might not have discussed yet.” Really good company secretaries are very capable of doing that, and it’s not just,“Oh, you haven’t gone through the action items." You've got to the end of the meeting. You know, like that’s just basic. I mean, you know, “Here’s a legal issue that"I don’t think you’ve discussed", or, "Here’s a stakeholder that hasn’t been considered.” A good company secretary will be able to do that, but they won’t be able to do it, if they don’t have the trust of the other participants in the conversation. So that only comes from engagement. So reach out, have a conversation with all of the directors, and in particular, the chair, and just offer your support to them, if nothing else, and your openness and willingness to to engage in the dialogue. That’s cool. David, thank you so much for your time. I really appreciate it. It’s been a cool conversation again. Hopefully, we’ll get to catch up again in future. Sure. And I look forward to seeing you next episode. Thanks, Mark. Thank you for watching this episode of Governance Bites. We have more episodes on YouTube and your favourite podcast channel, where I interview directors and experts on various topics relating to boards of directors and governance. We’d love to see you back, and please like, subscribe, and share the videos and podcasts.