Event Partner Content: ‘Championing the golden age of corporate governance’

INSIDE LOOK: CHRIS HODGE ON CHAMPIONING THE GOLDEN AGE OF CORPORATE GOVERNANCE

Join Chris Hodge, Director for Governance Perspectives, Advisor for ICSA The Governance Institute, UK, in the 3-day MEA General Counsel & Board Secretary event to gain more insights on reinforcing corporate governance to ensure integrity and stability.

A leading force in the Corporate Governance network, Chris Hodge is a leading governance perspectives expert with 30 years of experiences in the industry. He is currently the Director for Governance Perspectives, and Advisor for ICSA The Governance Institute, UK.

In an interview we have conducted, Hodge discussed some of the pressing issues on the role of General Counsel and Corporate Secretary in the MEA (Middle East and Africa) region, including the key factors to thrive in the golden age of corporate governance and the crucial skills one should possess to overcome challenges that the role entails.

Management Events: What are the qualities of the modern general counsel and board secretary?

Chris Hodge: The short answer is that the qualities that a good company secretary or general counsel needs today are the same as they always have been, but perhaps they now need them to an even greater degree. They will obviously continue be called on by boards and management to provide expert advice on regulation, practice and procedure – and as regulation in particular becomes more complex and intrusive they will need to make sure they keep on top of it. But as our understanding of corporate governance and the factors that influence it evolves, then what you might call the “people skills” become more and more important – having the ability to guide boards tactfully but clearly, being comfortable engaging with investors, regulators and others outside the organisation who may have a very different perspective on issues, and so on.

ME: How would you describe the evolution of corporate governance over the last 20 years?

CH: It is difficult to do justice to that question succinctly, but broadly I think there are two main trends that you can observe over the last twenty years or so.

The first is that our understanding of what factors influence whether an organisation is well governed or not has deepened. To oversimplify terribly, to start with the focus was on process – internal controls, board committees, independent directors, public reporting and the like. Then we noticed that you could put in place textbook structures and procedures but still have major governance failures, so we began to focus on the people who are operating the processes – taking an interest in issues such as board composition, diversity, board evaluation etc. More recently, we have worked out that good people plus good process doesn’t always equal good outcomes and are beginning to think about slightly harder to define concepts such establishing the right corporate culture, defining the company’s risk appetite – and then thinking about the practical implications, such as the extent to which those sort of issues are the responsibility of the board rather than management.

In parallel, I think we have seen the definition of what is classified as “corporate governance” has got broader and broader. Initially, in relation to companies at least, it was mainly seen as a way of enabling external shareholders to be reassured that their investments and interests were being properly looked after, hence the focus on things like internal controls and audit committees. But if you look at the definition that the OECD now uses, it talks about governance being a means of fostering long-term growth and trust in business and contributing to more inclusive societies, amongst other things.

On the one hand, I am not sure this is always helpful. There is a bit of a tendency these days every time a company collapses to call it a “governance failure” when sometimes it is really a case of bad judgement or bad luck. And sometimes it is bad behaviour by a few individuals, which ought to be recognised as such and punished appropriately rather than being called a systemic failure and resulting in yet another round of regulation.

On the other hand, the sort of issues that the OECD talk about and that are being debated extensively in the UK at the moment – companies impact on and obligations to their workers, customers, suppliers and local communities for example – are undoubtedly very important ones. And whether it is right or wrong to call them governance issues, they should be on the board’s agenda. And therefore they are issues that the company secretary or general counsel has to be familiar with and be able to advise on.

ME: How can general counsels and board secretaries champion their roles as a business adviser and a trusted partner? What challenges/hurdles do they usually encounter?

CH: I think “champion” is exactly the right word to describe the role that the company secretary ought to play in relation to governance. When I was a regulator at the Financial Reporting Council in the UK we used to say that, when it comes to governance, the company secretary was perhaps second only in importance to the chairman of the board in terms of their potential influence.

It is difficult to generalise about the challenges – they will vary from company and company – but there are perhaps two that I would highlight, and they sort of go together.

The first is that a lot of senior managers and other people have a very limited or narrow understanding, if any, of what the job of a company secretary entails. They may think it is nothing more than arranging the board meetings and taking the minutes – and if they aren’t aware of the skills and expertise the company secretary has to offer, then that is all the job will be. This is one of the reasons why the ICSA has been pushing the use of the title “governance professional” as an alternative to “company secretary”. Some might say it is semantics, but I think it does better describe what the role should involve these days.

My second observation is that governance professionals do not always help themselves. This is not true of all of them, of course, but in my experience many of them don’t like speaking up, and in particular don’t like speaking up about their own abilities and expertise. But if you don’t make people aware of the skills you have to offer, you shouldn’t be surprised if you don’t get asked to use them.

Personally, I would love to see more current or former company secretaries serving as non-executive directors on boards. An experienced company secretary will have spent more time in boardrooms than just about anyone else, and will have a great understanding of the mechanics and dynamics that make a board effective. But if you look at the CVs of non-executive directors they are notable by their absence. Part of that I think is down to these two issues – company secretaries underselling the contribution they can make, and others underestimating it.

ME: What is your advice for general counsels and board secretaries to thrive in this golden age of governance?

CH: It is the same answer as for the last question in a way. As you say, the increased importance and profile of governance is creating the opportunity for governance professionals to have interesting, varied and very fulfilling careers – not to mention the benefit for the organisations they work for. But they need to take those opportunities when they come along, and sometimes that means being willing to take risks or to “sell” yourself.

ME: You’ve started your career in the Department of Trade and Industry. Can you describe your journey going back when you first entered the industry, up to your appointment as advisor to ICSA The Governance Institute, UK?

CH: The journey has been a bit of a rambling one.  I applied to join the UK civil service shortly after leaving university, and in those days you were interviewed by a central recruitment office that then allocated you to a government department. Everyone applied in the hope they would get a job somewhere close to the centre of power or in an exotic overseas location. I got sent to a body whose job was to supply furniture to government office and army bases, and the only travel I got was to our warehouse.

As my career progressed, I found I was increasingly involved in regulating companies in one form or another, and what I learnt was that the same sort of issues about how to make regulation work effectively came up whatever the subject matter – is it better to try to incentivise or threaten companies to get them to change their behaviour, for example, or when can you rely on the market to provide the necessary discipline and when do you need regulators to take an active role

So when I was given the chance to join the Financial Reporting Council in the UK at the time when it was given responsibility for setting corporate governance standards in 2004, it seemed like a great opportunity to try to apply some of what I learnt. It turned out to be the most interesting job of my career up to that point, and the only one I could have spent ten years doing before starting to feel restless. Not everything we did worked, by any means, but I think some of the innovations we introduced, both on corporate governance and by introducing the first Stewardship Code for institutional investors, stand up reasonably well.

I decided a couple of years ago that is was time to try something different, so I went freelance and am now an advisor to a number of different organisation.  One of those is ICSA: The Governance Institute, and I am delighted to be working with them. I always held them in very high regard when I was a regulator for their knowledge and sound advice – as you would expect from an organisation supporting company secretaries.

ME: What has been the biggest challenge you have encountered upon your appointment as advisor to ICSA The Governance Institute, UK?

CH: At the risk of sounding complacent, working with the ICSA hasn’t presented many difficult challenges, but a lot of that is down to good timing. A few months after ICSA invited me to become their advisor we had a change of Prime Minister in the UK, and Theresa May has put the behaviour of business and corporate governance reform at the top of the political agenda. That has created a great opportunity for ICSA to share its expertise and demonstrate its credentials – for example, the Government has recently asked us to lead work on a new code of practice for board evaluation.

On a personal level, the biggest challenge has been becoming self-employed after spending all of my career as a full-time employee in the relatively sheltered world of government and the public sector. I’ve had to try to learn to look after myself, which has made me all the more appreciative of the people who gave me such great support in my previous jobs.

ME: What are the future plans for the ICSA The Governance Institute, UK? How do you see the organization in the next 5 years?

CH: I’m only an advisor to the Institute, so I’m not personally involved in developing its future strategy. That said, the leadership team have a very clear business plan which they describe as making the ICSA “fit for the future”. Some of the key elements of that are recruiting more students and helping them to develop into the next generation of governance professionals, and improving the institute’s capabilities so that it is able to support members even better than it does at the moment.

One particularly relevant example of that is the memorandum of understanding that ICSA signed with Hawkamah earlier this year to collaborate in promoting good governance frameworks and practices in the UAE and the MENA region more widely. The ICSA has many members in the region and this agreement should help ensure they get the support they need. As well as my links to the ICSA, I also have the honour of being a member of Hawkamah’s international advisory board, so personally I think it is great to see the two organisations working together.

Learn more about Chris Hodge, and his thoughts on the modern role of a Company Secretary in our MEA General Counsel & Board Secretary event in Dubai, United Arab Emirates, on the 29th – 31st of October 2018.

“I have been asked to talk about where I think corporate governance is heading, which is a wonderful topic to have because nobody can point out I’m wrong until long after the conference is over! But what I will try to do is highlight some of the trends we have seen in recent years – for example, the greater emphasis on ethics, corporate culture and the need to consider all stakeholders, and the expectation that boards should become more “hands on” in relation to at least some organisational matters. I’ll also reflect on what the changing focus of governance means for company secretaries, and the skills and attributes that they might need.”

Text by: Dennis Buckly

Should you be interested to attend the MEA General Counsel & Board Secretary in Dubai, United Arab Emirates on the 29th – 31st of October 2018, please contact Didi Jaafar at didi.jaafar@managementevents.com or read more here.