The X Principles of Corporate Governance of the LuxSE

Breakfast Briefing Summary

We invite you to read the summary of our Breakfast Briefing session on The X Principles of Corporate Governance of the LuxSE!

Maurice Bauer

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What is the company secretary’s role?

The Luxembourg Stock Exchange’s 10 principles of corporate governance are a key guide to best practice for all businesses in the Grand Duchy. It states that company secretaries have a central role in ensuring these ideals are adhered to. These responsibilities were highlighted at the ILA Breakfast Briefing on 18th September. 

First created in 2006 and subsequently revised on three occasions, this code of conduct is obligatory for firms listed on the Luxembourg Stock Exchange, but otherwise is a guide to best practice. Recently updated in 2018, the 10 principles  call for a clear governance framework, with a requirement for high quality directors, appointed in a transparent fashion and with a clearly defined role for the board and executives. A code of ethics and clear remuneration policy should be established, with reporting procedures, control functions, and a corporate social responsibility policies in place. Furthermore, all shareholders should be treated fairly. 

The fundamentals

Maurice Bauer, secretary general and head of corporate social responsibility at the Bourse told the Breakfast Briefing that the principles can be divided into three categories: legally mandatory compliance rules; “comply or explain” recommendations which are mandatory except in exceptional circumstances; and guidelines which are indicative but not binding. 

So what are the company secretary’s specific responsibilities? The 10 principles state the fundamentals, that the board should appoint a secretary to ensure rules and procedures around Board operation are implemented. This includes preparing minutes and providing board members with the information they need to perform their duties in a timely fashion. They must also keep track of each director’s work on other boards, to ensure potential conflicts of interest are accounted for, and that each individual has sufficient time to complete their duties. 

Proactive steps

These tasks are clearly stated, but most of the other responsibilities are somewhat loosely defined. “If you want to have a clear and publicly determined job description as company secretary please move to London,” Maurice joked, highlighting the potential for different interpretations of this role. However, given that the company secretary’s job often seems to encompass that of the governance officer, he pointed to four main ways as to how these responsibilities could be addressed proactively.

Role no. 1: Supporting all board members, particularly the chair and shareholders by providing advice on corporate governance and related law. This also includes building a corporate governance culture among all stakeholders, particularly ensuring buy-in from the board and senior management. Flowing from this, the company secretary needs to ensure sufficient time and human resources are committed so that the board can add value.

Role no. 2: Ensuring legal and corporate governance matters are properly addressed, and that the board is appropriately briefed about this. They should drive this as they are key part of the system of checks and balances, acting as a watchdog. They should also push for board diversity, both in terms of the individuals’ background and experience. Central to this is drafting an annual corporate governance report that will be validated by the board.

Role no. 3: Ensuring fulfilment of the company’s legal obligations, plus drafting corporate governance policies and procedures. The company secretary must monitor changes in relevant legislation. For example, in recent times they should be across the details of VAT changes concerning treatment for directors and its impact on shareholders, the new shareholders directive, and the new regulation concerning the publication of annual accounts.

Role no. 4: The company secretary is a facilitator for corporate governance work, and does this by easing timely communication between the board, management and relevant committees. This includes regular board evaluation and being a sounding board for the chairman and other directors. Interpersonal skills are required to build relationships and, when necessary, to raise concerns about how the board is considering questions and taking decisions. 

Corporate governance focal point

Maurice then highlighted four main actions. Ensuring board effectiveness by reviewing how corporate governance relates to risk management, and that directors are well prepared for their duties. Secondly, clear procedures should be complied with and detailed in the annual management report. Thirdly, all directors should be well informed, including access to support from the company secretary, professional development programmes should be available, succession planning should be in place, and insurance coverage advice provided. Finally, relationships should be supported with external stakeholders, particularly regulators and investors.

In short, the company secretary is guardian of corporate governance, and that can put them in challenging positions given their close relationship with the chair. Maurice pointed out that there is a risk of becoming a “punchball” between the CEO and chair, with potential for people to wish to “shoot the messenger”. The ability to maintain the necessary degree of independence despite these challenges is key.