Pity the poor Corporate Secretary, who has a role that few understand and fewer appreciate. Organizing Board meetings, keeping the minute book and share capitalization schedules up-to-date, organizing the Annual General Meeting; none of this stirs the blood of an entrepreneurial tech company but is nonetheless necessary.
In an early stage tech company, the role often goes unfulfilled. No one has the time to manage the processes properly, so the CEO and Board make do with unorganized reports, incomplete and inaccurate minutes, an inaccurate and outdated share cap table, and poor governance practices.
If an institutional financing appears on the horizon, the company often hires a Chief Financial Officer who takes on the role of Corporate Secretary to keep the records in order and 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.
Here are some of the items the Corporate Secretary needs to manage:
1. Board approvals. As the corporate watchdog, the Secretary must anticipate the items that the Board needs to review and approve, such as:
- The issuance of all shares and options, including shares issued on exercise of previously approved options. A financing or exit will require the company’s counsel to issue a legal opinion that all of the shares have been validly issued. If the share cap is wrong or out of date, there will be delays and costs to bring it in order before the opinion can be rendered.
- 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 expenditure.
- 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 any action, the mere existence creates an appearance of conflict. If the Director and Board are unaware of the need to address the conflict, then the Corporate Secretary must inform the CEO and Chairman, and request that the Board review the conflict.
It is up to the Corporate Secretary to keep track of these items and bring them to the Board for approval.
2. Minutes and Minute Book. The Corporate Secretary keeps the minutes of the Board meetings, and also maintains the Minute Book. S/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.)
In addition, the minute book must also include any Directors’ Resolutions signed by all Directors, to approve a financing, acquisition or other significant events. 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.
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.
3. Annual General Meeting. The Corporate Secretary also organizes and runs the AGM. Typically, the meeting is held in the 5th month after month end. This allows time for the financial statement audit to complete and to issue the Notice of the AGM with the required notice period within the six month window in which the AGM must be held. It is the Corporate Secretary’s job to assemble the documents and distribute to the shareholders.
The Corporate Secretary has a lonely and thankless job, constantly keeping track of a multitude of reports and details that only cost time and money. However, a well-maintained set of records gives confidence to investors and acquirers, and this may shorten the time and reduce the costs of a major transaction.
This article first appeared in the Winter 2012 edition of The Hire Standard – the newsletter of Corporate Recruiters, British Columbia’s leading recruiters of high technology talent.