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European Commission Essay

Effective company secretarial practice and corporate governance have been challenged further with the development of complex organisational structures during the 20th Century. Group structures have become commonplace, due to the information revolution and globalisation, with some companies holding hundreds of subsidiary companies. “The current position is covered by Section 283 of the Companies Act 1985 which states that “every company shall have a secretary”. ” (ICSA, 2002). Identify and evaluate the major current concerns and issues facing the company secretary

Introduction ICSA (2002), describe the role of the company secretary as someone who “usually play a central role in the governance and management of their organisations…… through regulation, legislation and best practice…. ” It is necessary to understand the breath of responsibility a company secretary may encounter (see appendix 3) to evaluate the major current concerns and issues. Whilst the duties of the company secretary are not specified by the Companies Act, contractual duties often exist.

Company directors hold primary legal responsibility for ensuring that the company meets legislative requirements. However, the company secretary may also be liable for failures to meet certain provisions of the Companies Act if it is part of their contractual duties. Corporate Governance Recent high profile cases

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of company fraud (Enron and BCCI) have pushed corporate governance to the forefront of company management. The company secretary plays a vital role in ensuring effective corporate governance.

Governance Issues and Legislation The regulatory framework for effective corporate governance stems from a wide range of conditions such as legal requirements, statutory provisions, guidelines and codes of practice (Wong, 2000). Appendix 4 lists recommendations from guidelines and code of practice such as the Cadbury Report, the Greenbury Code and the Hampel Committee. These Committees culminated in the production of the Combined Code on Corporate Governance issued by stock exchange in 1998.

This Combined Code included rules on proper board meetings, establishing key committees, appointment of non-executive directors and has been appended to the London Stock Exchange’s Listing Rules. Whilst it is not mandatory for companies to follow these codes of practice and guidance reports, listed companies not following the Combined Code need to provide justification to the Stock Exchange for divergent practices. “Such disclosure requirements exert a significant pressure for compliance” (Monks and Minnow, 2001).

To monitor and ensure compliance with the rules given in the Combined Code companies must also “ensure that they appoint suitably qualified staff, including a company secretary” (Robinson, 2002). It is also important for the company secretary to maintain independence from the board to protect rights of stakeholders. “The challenge for company secretaries is to play a leading part in achieving a balance between their corporate and commercial responsibilities and the interests of all stakeholders… ” (Altman, 2000). Company Law Review (CLR) The CLR, commissioned by the Government in 1998, propitiates smaller, private organisations.

The CLR (which will inform the new Companies Act, expected in 2003) proposes the removal the strict reporting required for all companies through the Companies Act. This Act will focus primarily on the large majority of private companies, and detail the provisions that apply to those companies (Blanks, 2001). Existing legislation focuses mainly on detailing the provision of large companies. The new Company Law and Reporting Commission and the Standards Board, will keep company law and governance under constant review, providing guidance and advice to companies and government.

The Standards Board will be responsible for keeping the Combined Code updated and setting company reporting requirements. The CLR proposes to remove the mandatory obligation for all private companies to have company secretaries, so that it will be the decision of the private company whether or not to appoint a company secretary. ICSA are concerned that this proposal ignores the role that the company secretary undertakes in influencing and monitoring the governance of a company (Blanks, 2000; DTI, 2001).

ICSA recommend that only very small private companies have the option not to appoint a company secretary. Electronic communications Major advances in technology affect the way the company secretary works. The Companies Act 1985 (Electronic communications Order 2000) allows companies to communicate with shareholders electronically. Appendix 5 shows the circumstances where electronic communication can be used. The company secretary must know which statutory declarations can be substituted by electronic submissions. False submissions will incur the same strict penalties for making a false declaration.

By 2005 the Government will require Companies House to be able to accept all documents by electronic form which will mean that all accounts, resolutions and other documents will be submitted electronically. Whilst the introduction of the electronic system will have advantages such as speed of information transfer and elimination of storage requirement, it will be a challenge for all companies (including Companies House) to reach this level of technological advancement. For example, staff will need to have relevant electronic knowledge base and suitably advanced computer equipment.

For larger corporates the CREST system (introduced in 1996) is a technological advancement which allows relevant staff to have more control over international share settlements. Advantages of CREST are the ability to cope with large volumes of transactions, in multiple currencies and allow anyone dealing on the stock exchange to be able to hold shares in electronic form. Data protection/copyright law Following the introduction of the 1998 Data Protection Act, companies need to be aware of the implications of storing ‘confidential’ information in hard copy or in electronic form.

The Act aims to protect the confidentiality of employees and members and is detailed in Appendix 6. Organisations can be liable to prosecution under UK copyright law if they breach the regulations on the law. For example, companies may be liable if they allow their employees to use software, which has not been obtained, from a legitimate source. Corporate Social Responsibility (CSR) Increased CSR regulation enforced by organisations such as governments, the European Commission and lobby groups have raised awareness and recognition in many companies on a global level.

Corporates are recognising the need for investment in CSR to achieve sustainable growth. Many larger organisations are developing CSR strategies (CSR strategy for Astra Zeneca is shown in appendix 7). Affiliated Legislation Financial Services The company secretary should also be aware of changes in affiliated legislation such as the Financial Services and Markets Act (2000). Whilst this is directed primarily at the regulation of financial markets and professionals, there are changes which affect day-to-day business operations, shown in appendix 8.

European Commission (EC) Law The EC is introducing increasing amounts of company legislation, which may prevail over country legislation. The EC is looking into the possibility of harmonising the 43 different corporate governance codes used across Europe. Limited Liability partnerships (LLP) The introduction of the LLP Act 2000 changes the way certain organisations operate. Such organisations benefit through a tax status of a partnership with limited liability for its members and organisational flexibility.

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