The Chartered Governance Institute, UK & Ireland, has responded to press comment on the role of the general counsel.
An article in the Financial Times on 10 September reported - “Lawyers concerned about ‘extraordinary’ FRC code omission” - that a group of lawyers and academics had criticised the Financial Reporting Council’s review of the UK Corporate Governance Code for an “extraordinary omission” by not formalising the role of the general counsel in the Code.
As the professional body for governance across all sectors, the Institute strongly disagrees with this view and wrote to the Financial Times on 12 September to that effect.
Both the general counsel and company secretary role are important in a business. There can be some overlap between the two, but they are distinct functions and businesses are governed best when the two roles – and the roles of the chief risk officer and head of internal audit - work collaboratively, but with respect for the duties that each role should carry out.
That each of these roles should play an essential part in the internal controls of an organisation goes without saying, but we must recognise the different skill sets of each and there is more than enough work to go around for all to have a unique role and contribution within any organisation, not just listed companies.
A plc in the UK is required by law to have a company secretary, who is an ‘officer’ of the company and, given their governance responsibilities and the associated need for independence from management, should report directly to the chair of the board in respect of all board matters and not to anyone who is not a board member. In accordance with the UK Corporate Governance Code, both the appointment and removal of the company secretary should be a matter for the whole board. It is also for the board to decide which members of the executive team should attend board meetings, which may include the general counsel or others, but there is a difference between this and their having a ‘right’ to attend board meetings. They do not.
Sara Drake, CEO CGIUKI said:
“This response to the FRC shows a rather extraordinary degree of overreach by the signatories. The suggestion that ‘Lawyers are fundamental to corporate governance’ forgets that there are already highly trained specialists in corporate governance, namely members of our Institute, as the professional membership and qualification body for those working in governance, including chartered secretaries.
The general counsel already has a role as the chief lawyer in a company. Like any other member of the management team, they should be instructed to attend board meetings when the board require specific advice on areas within the legal remit, but they have neither role in, nor responsibility for, corporate governance. That responsibility rests with the board, which will look for support to their specialist professional adviser on governance matters, the company secretary or governance professional. General counsel report to company management and lack the independence of governance professionals who report directly to the board.
Our members, despite being highly qualified governance professionals, would not claim that this made them experts in a different professional area; lawyers might want to consider exercising similar humility.”
Peter Swabey, Policy and Research Director CGIUKI said:
“I have always seen a combined role of company secretary and general counsel or finance director, or one where the company secretary reports to the general counsel or finance director as a conflict of interests waiting to happen. It may all work OK but, if an individual has to give different advice to the board depending on which ‘hat’ they are wearing, there is a conflict and it is then a bit too late to start dealing with the conflict as well as the issue. All are important roles but they are distinct and complementary.”
For further information, please contact David Mortimer, Head of External Affairs: dmortimer@cgi.org.uk.
Notes to Editors:
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The Chartered Governance Institute UK & Ireland is the professional body for governance and the qualifying and membership body for governance professionals across all sectors. Its purpose under Royal Charter is to lead ‘effective governance and efficient administration of commerce, industry and public affairs’ working with regulators and policy makers to champion high standards of governance and providing qualifications, training and guidance. As a lifelong learning partner, the Institute helps governance professionals to achieve their professional goals, providing recognition, community and the voice of its membership.
One of nine divisions of the global Chartered Governance Institute, which was established 130 years ago, The Chartered Governance Institute UK & Ireland represents members working and studying in the UK and Ireland and in many other countries and regions including the Caribbean, parts of Africa and the Middle East.
Website: www.cgi.org.uk -
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