1. Introduction. Among the thankless tasks in a company, the Corporate Secretary role ranks near the top. It is purely an overhead function charged with organizing Board meetings, keeping the minute book and share capitalization schedules up to date. It is never noticed when it is done well, but can hurt a company if done poorly requiring a renovation of the books and records. The only saving grace is that if done well, it relieves the CEO, Chairman and other directors of a significant burden on their time. It may shorten the due diligence period during a financing or exit.
In an early stage tech company, the role often goes unfulfilled. The CEO and Board make do with unorganized reports, incomplete and inaccurate minutes, an inaccurate and outdated share cap table, and poor governance practices, because without a corporate secretary, no one has the time to manage the processes properly. If an institutional financing appears on the horizon, then there is an immediate and huge project to prepare and assemble the missing minutes and organize the minute book, confirm the issuance of shares and options, and attend to other corporate janitorial work that never got done.
Around this time, the company often hires a Chief Financial Officer who takes on the role of Corporate Secretary to bring professionalism to the Board and governance processes. In this capacity, although technically subordinate to the CEO and Board, the Corporate Secretary may in fact lead the Board through its responsibilities since s/he may know more about it.
Likely, all of the functions described in this chapter 4 will become the responsibility of the Corporate Secretary. Pay particular attention to section 4.0 Organizing a Board Meeting which lists the items that the Secretary is responsible for.
2. Board approvals. In playing the role of corporate watchdog, the Secretary must anticipate the items that the Board needs to review and approve. The Board must review and approve the following items, either as a matter of good governance or as required by law:
- The issuance of all shares and options. Indeed, even though the Board has approved the issuance of options, they also have to approve the issuance of shares once the options have been exercised. During a financing or exit, the investors will carefully review the share cap table and will require the company’s counsel to issue a legal opinion that all of the shares have been validly issued. This is the one item that may cause the greatest amount of rework if not done properly at the outset.
- The annual budget, 30 days before the start of the budget year.
- The monthly or quarterly financial statements, with a comparison to budget.
- A running cashflow projection several months into the future.
- Any long term commitments, like a building lease, or a large customer contract.
- Any large expenditures.
- Compensation for the CEO and senior executives.
- The annual reviewed or audited financial statements.
- The terms of any proposed financings and issuance of any term sheets.
- Any debt, equity or bank financings.
- Any items that also require the approval of investors pursuant to a shareholders’ agreement.
- Any related party transactions. These are items where the company is doing business with a Director or senior executive. These include any loans to or from principals, any consulting or other contracts between the company and a principal or other business that is not at arms’-length.
- Any conflicts of interest. A conflict occurs when a principal is in a position where his personal interest and the company interest intersect. Whether or not the principal takes action in the midst of the conflict, even if such action is in the company interest, even the existence or appearance of the conflict is a cause for concern. If the principal does not declare the conflict and remove himself from situation causing the conflict, then the Corporate Secretary must inform the CEO and Chairman, and request that the Board review the conflict. (The principal should declare the conflict to the Board and remove himself from any discussion on the matter, and have this recorded in the minutes. This generally absolves the principal and the company.)
- As noted, it is up to the Corporate Secretary to keep track of these items and bring them to the Board for approval. It may be convenient to keep a running file of items to go before the Board at the next meeting, so that they are not overlooked when the next Board agenda is assembled.
3. Minutes and Minute Book. The Corporate Secretary keeps the minutes of the Board meetings, and also maintains the Minute Book. He must ensure that all of the minutes are approved by the Board, signed by the Chairman and Secretary and inserted into the Minute Book. (This is often done online.) As noted, incomplete minutes may cause a lot of clean-up work in order for a financing or exit to proceed.
In addition, the minute book must also include any Directors’ Resolutions signed by all Directors, which are typically a document required in a financing, acquisition or other major transaction requiring formal Board approval. Usually, these resolutions have to meet exacting legal standards and are therefore prepared by company counsel. The Corporate Secretary inherits the task of chasing directors for signatures.
Similarly, major transactions such as the creation of a new class of shares or the sale of assets may require the signatures of all shareholders. This may require the Secretary to find dozens of long lost shareholders and secure their signatures on a resolution which they may not understand for a company long forgotten. One of the many thankless tasks.
In addition, the Secretary must ensure that the annual report is filed each year with the Registrar of companies. Usually the company counsel will have this task on a perpetual calendar, and prepare the necessary documents. Recently, the task has become much simpler in B.C. as the province has enabled companies to file their own reports online.
4. Annual General Meeting. The Corporate Secretary also organizes and runs the AGM. Typically the meeting is held in the 5th month after month end, leaving enough time for the financial statement audit to complete, and issue the Notice of the AGM with the required notice period, both within the six month window in which the AGM must be held. The AGM is a mechanical process. The Secretary can obtain a template AGM script from the Company counsel, which indicates the steps required to call the meeting, declare a quorum, elect the directors, and question management. The Chairman will follow the script, usually with the guidance of the Secretary.