Over the course of my career as a Company Secretary, I have been well placed to observe the increase in scrutiny which regulatory requirements have placed on Directors. Independent NonExecutive Director (“INEDs”) are particularly sensitive to these changes and the consequences they invariably have on their own roles, the latest of such being the implementation of CP86 and in particular the undertaking of the Organisational Effectiveness ("OE") role. So what is this new requirement which has been discussed at great lengths by boards over the past 18 months and what are the practical implications for the INED who may be requested to take this role on and for the Company Secretary who supports them.

CP86 is a set of rules and guidance issued by the Central Bank of Ireland (“CBI”) related to the governance and effectiveness of Irish authorised Management Companies, including self-managed funds, the purpose of which is to further enhance investor protection. The final guidance was issued in December 2016 and from this guidance a number of key requirements emerged. In addition to streamlining the ten UCITS managerial functions to six, CP86 also saw the introduction of the OE role the purpose of which is to ensure that fund management companies are organised and resourced in an appropriate manner, the OE role holder is not permitted to undertake any of the six managerial functions. While the guidance does not specify that this role should be undertaken by the Chair, it is by its very nature, most suitable to a senior INED which is most commonly the Chair.

In most organisations, discussions surrounding the formalisation of the OE role have been ongoing for sometime with the Company Secretary invariably involved in the process. In practical terms, this stems from the Company Secretary being familiar with the CP86 guidance and driving discussions to ensure that it has had space on board agendas for adequate dialogue. While the obvious candidate may have been identified by management who are seeking to quickly formalise the appointment, the Company Secretary has been evaluating a number of the practical points in greater detail:

Does the current Chair have the time capacity or willingness to take on the additional role?
The CBI's guidance states that director’s annual time commitments should not exceed 2000 hours or 50 days annualised. However, this does not take into consideration time commitments an individual has outside of their directorships and the impact this may have on their ability to perform an OE role. Many INEDs will have carefully thought out their time commitments for each organisation they are involved in and the additional work required by the OE role will mean an adjustment to this.
Separately, it may be the case that an individual may simply not wish to take on the OE role despite the fact that they may seem like the obvious candidate to management. Given the relationship the Company Secretary has with the Chair they are usually aware of these issues before most. The Company Secretary will be tracking the Chair's directorship and time commitment details so they will have this information to hand and even if it has not been directly discussed, they will be aware that any significant reduction in directorships over the course of time may indicate the individuals desire to dedicate more time to interests outside of the boardroom therefore making the prospect of an additional undertaking unappealing, in particular one which, despite its level of responsibility, is still relatively lacking in guidance from the CBI.

What kind of additional reporting will need to be provided to the OE role holder to enable them to fulfil their role?
Despite already acting as a Chair and receiving all board and or committee papers it is likely that the OE role holder will request additional management reports. The Company Secretary will need to discuss this with the OE role holder to ascertain their requirements and to gauge if they can be adequately fulfilled in a timely manner. Practically, this may not always be possible and a degree of negotiation may be required to agree on what can be supplied. While strong management will endeavour to provide the OE role holder with as much information as required, there may be additional time and resources needed to achieve this and the Company Secretary may be involved in such discussions.

What additional meetings will need to be worked into the Chair's calendar with the organisation?
As a starting point, monthly or quarterly meetings with designated persons or other senior members of the management team will most likely need to be arranged. In practical terms, the organisation of such meetings and liaising between parties will be required and will likely fall into the remit of the multi-tasking Company Secretary.

What will the additional level of remuneration for the role be?
While this is a sensitive issue, the reality is that INEDs are skilled professionals who will expect to be compensated at market level for their time relating to the OE role. The challenge for the Company Secretary and those involved in the remuneration process is to determine a level of remuneration which is acceptable to the OE role holder and the organisation. This can be difficult to achieve where there is no industry standard in place. The finalisation of the terms for the role and the drafting of a separate letter of appointment will usually fall to the Company Secretary.

While consideration of the above may well fall in the first instance to the Company Secretary, the answers will inevitably vary by organisation and the OE role holder. The greater question which emerges is how will the success of the OE role be measured both by regulators and the organisation itself. Will it be an assumed success once an organisation meets all regulatory obligations or will there be any deep dives into how the role is being undertaken? As with all regulatory developments we can expect it to evolve over the coming months and years, however one certainty is that the guidance and knowledge of Company Secretaries in this area will always be invaluable.

Linda Slevin.

Linda is a member of the ICSA Ireland Region Company Law & Regulatory Committee.