The right tool for the job

A week is a long time in business, and it can be an even longer time in corporate governance. Shareholder activism, intense public scrutiny of all aspects of board operations, the furor over executive compensation and constantly shifting regulatory goalposts provide a massive challenge to anyone tasked with corporate governance at publicly listed companies.

Corporate secretaries, compliance officers, general counsel and others involved in the smooth running of a company must keep up with a rapidly changing environment. Staying abreast of emerging best practice while also informing other management and board members is an almost impossible task.

On top of this, many departments are experiencing layoffs or otherwise being pressured to reduce costs while still producing the same standard of work. These days, governance is a given and cutting corners is not an option.

One solution for in-house governance professionals struggling to keep their head above water is to seek help from outside advisers. In the past this often meant a law firm or one of the large auditing consultancies, but there is a growing realization that these companies may not always have the skill sets and experience necessary to advise on the realities of implementing and maintaining a corporate governance and compliance program.

Hands-on help

A new type of professional is emerging to fill the information gap. Several highly experienced and well-respected governance experts are leaving full-time in-house positions – some voluntarily, others as a result of corporate restructuring – and starting their own unique consulting services.

One of the biggest problems for many in-house people is not so much knowing what to do but, rather, figuring out how to implement the program, and trying to do so with limited resources. ‘Recent history makes it painfully obvious to us that we are long on governance challenges. Unfortunately, most corporate secretaries are also short on internal resources,’ explains Sylvia Groves, principal at GG Consulting. ‘Corporate governance consultants can fill that gap.’

Kris Veaco, founder of Veaco Group, says she first realized there was a need for more practical guidance of this type during a panel discussion at an event for general counsel back in 2005. At the time, she was in-house counsel and corporate secretary for McKesson.

‘We were discussing how to be more effective with your board,’ she recalls. ‘I was joined on the panel by a couple of other in-house corporate secretaries: Lydia Beebe of Chevron and Marie Huber, [currently general counsel and secretary at Agilent Technologies]. Many of the attendees were from small to mid-sized companies and, as we were presenting some of the fundamental things we were doing with our boards, it became clear that very few of the attendees had many of these platforms in place.

‘This led me to thinking about how these people are supposed to get what they need. They didn’t have resources or staff, and here they were taking on all of this corporate governance work.’ Given the number of small, governance-focused practices being run by former in-house experts, it is obvious there is a need for people with practical experience who can go into a company and help the general counsel, if that is the person with responsibility for governance, and either educate that person, get him or her started or help him or her to do the work. ‘It is the ability to implement, and implement wisely, that a lot of these companies lack,’ explains Veaco.

‘There is a definite need for experts in this field who understand the theoretical and legal concepts but who also have the ability to work with companies in a true hands-on fashion and help in designing and implementing practical and functional governance processes,’ explains Stephen Norman, founder and principal of SP Norman & Co and former corporate secretary at American Express.

Smaller is riskier

According to Norman, one of the most important functions of those tasked with governance at a company is to ensure the board gets precisely what it needs to operate at the highest level. ‘For me, the primary objective should be to work with companies to build up the relationship between the board and management,’ he says.

The biggest problem, however, is that often a company does not know it is doing something wrong, and therefore does not have any idea that it needs help. ‘People don’t know what they don’t know,’ muses Veaco – but what they don’t know can definitely hurt them.

Norman points out that there are some places where problems are more likely. ‘Newly public companies and those at the lower end of the market-cap spectrum usually need the most help with their governance and compliance structures,’ he explains.

For most small companies, the biggest problem – besides a lack of knowledge about what they should be doing – is resources.

‘I have seen several smaller companies where the CEO’s assistant is the corporate secretary,’ says Veaco. ‘These people may be great at the logistical side of things, but they often do not have a great understanding of the finer points of the legal implications of the governance work. There are also a number of companies in which the CFO also serves as the corporate secretary. In cases like these, where the CFO is busy being the CFO, it is likely some of the corporate governance work is not getting done.’

‘Streamlining board documents is another area that is gaining attention, and one where many companies need work,’ adds Groves. ‘There are a lot of new, strategic ways to distribute information to board members. They get so much stuff that it’s important to give them a ‘key elements’ outline that is no longer than two pages.’

Different place, same problem

Communication within the company is one thing, but perhaps the single biggest problem for newly listed and smaller companies is shareholder communication. ‘One of the areas in which I will be most interested in working is helping companies improve their proxy circulars by transitioning them from a difficult-to-read, legalese-loaded compliance exercise to a well-organized communication tool,’ says Groves.

She was on the NI 54-101 committee that looked at some shareholder communication issues in Canada. One of the proposals put forward by this group was to adopt a notice-and-access system similar to that of the US. There have been some sound benefits for US companies going down this path, but it does raise some problems. One of those is what to put on the ‘notice’.

Also, there is a lot of new electronic information being made available to investors. How should this be written and disseminated? With the new distribution tools, there is going to be more flexibility in what can be sent and how it can be sent. Companies are going to need a lot of advice on how to write these communications to ensure not only that they comply with the legal standards but also that they are used effectively.

A further important element that companies need help with is the governance audit. This involves working with a company to identify the central elements of governance and where the company stands on each one. Most companies will be doing some things quite well but will be lagging in others. A former corporate secretary, someone who knows where the company skeletons are likely to be hidden, can help the firm develop a plan to improve unsatisfactory areas over a realistic time frame.

‘Corporate governance means different things to different people,’ explains Veaco. ‘When you are talking to the compliance side or the accounting side, those people think of it as SOX 404 and what they need to be getting to the audit committee. When we think about it from the corporate secretary perspective, we think of it in a broader way that is focused on the full board of directors and aims to ensure they are all getting all the information they need to be as effective as possible.’

‘Corporate governance is really just a synonym for things running well,’ concludes Norman. ‘Governance is made up of three elements, a triangle of sorts. On one side is management, on another are the shareholders, and on the third is the board. At its core, governance is about getting all three sides of the triangle communicating effectively.’

Top five areas for growth in governance consulting

• Governance health and strategy engagements that first identify risk areas – based on an organization’s unique governance circumstances (shareholder base, structure, board composition, vulnerabilities) and the trends and regulatory changes that may impact them – and second, provide a tailored strategy to address those risks.
• Value-added board performance evaluations that identify key areas of concern with the quality of information provided or relationships with management, as well as current strengths and opportunities for improvements in process, orientation or education.
• Building trust through improved corporate governance disclosure to stakeholders, including clear, concise information circulars and comprehensive website information.
• Streamlining board documents – organizations spend a lot of their resources on improving communications with employees and shareholders, but don’t do the same for board materials. By developing and instituting communication standards that give directors concise overviews and relevant back-up, organizations can take full advantage of the most precious of their directors’ resources: time.
• There will never be more than 24 hours in a day. Corporate secretaries’ time is, by necessity, spent on the most urgent and important matters. Value-added work (think short-term pain, long-term gain) is often seen as a luxury, but with improvements in process and administration that free up time, it is one your organization can’t afford not to find time for.

Source: GG Consulting