In recent years, regulators have increased their focus on ensuring companies practise good corporate governance as evidenced by the revised Insurance Code of Conduct (the Code), which came into effect on 1st September 2022.
The Code fosters the spirit of good corporate governance in which highly skilled and experienced company secretaries and administrators are well versed. Corporate Service Providers (CSPs) play an integral part in ensuring compliance with enhanced requirements around board governance and effectiveness.
Generally, CSPs have access to a network of diverse local candidates to fulfil the role of independent non-executive directors and non-executive directors on client boards where necessary. This director pool consists of highly experienced individuals with specific industry knowledge and can therefore leverage their expertise in order to add value to the business, while also maintaining independence and operating in the best interests of the company. A Bermuda-based director brings a deeper understanding of the jurisdiction, which ensures that the board is kept abreast with regulatory, legislative and sectoral changes in Bermuda. In recent years, with the introduction of the Economic Substance Act 2018 and the Economic Substance Regulations 2018, this area has seen increased uptake and regulatory scrutiny.
A critical aspect to board composition is ensuring diversity and inclusion on the board through the representation of different perspectives and specialisations. Diversification also allows a board to adapt to the demands of stakeholders as well as the ever-changing local and global environments. A prime example is the increased focus on environmental, social and governance (ESG) matters, such as by the Code, which requires the inclusion of ESG risks in a company’s policies and risk management framework. As part of board support services, CSPs ensure that boards’ consideration, implementation and review of policies, procedures and frameworks are documented in a way that demonstrates that the directors are exercising the appropriate mind and management. The recent collapse in the financial sector emanating from Silicon Valley Bank has highlighted the need to ensure that boards operate effectively and efficiently and that board members possess the appropriate skills and expertise to discharge their duties. With the requirement for board effectiveness being codified, boards are obliged to implement formal board assessments to ensure that directors are fit and proper and are working together effectively to achieve the objectives of the board in a cohesive manner.
CSPs can assist with the development of board evaluations in addition to collating and reporting on the results. In conjunction with this activity, CSPs can leverage their knowledge and experience of efficient board performance, continued obligations and fiduciary duties of directors to provide board induction and ongoing training. In keeping with best practices and good governance, CSPs can support a board’s effectiveness and efficiency by monitoring directors’ tenure of service on the board while ensuring appropriate rotation to avoid instances where an extended period of appointment would materially impact and compromise directors’ acting in the best interests of a company.
An important aspect of governance is ensuring that board members are always acting in the best interests of the company and not subject to conflict. Section 97 of the Companies Act 1981, as amended, essentially provides that officers, which includes directors, shall act in good faith and disclose any interests they have in any professional interests, directorships and/or financial interests that are material to matters under consideration by the board. As such, CSPs ensure that one of the first items of business on a board agenda is to consider, declare and document any material interests. The Code requires that this practice be formalised in a conflicts of interest policy and procedure of the board with regards to each company subject to the Code. CSPs can work with clients to draft and establish a robust conflicts of interest policy and procedure and monitor adherence to it.
The economic substance regime has driven an increase in the requirement to hold an adequate number of physical board meetings in Bermuda where strategic, risk management and operational decisions are made by the directors. This facilitates productive discussions and decision-making at the board level. The accurate recording of these discussions and decisions at such meetings is a vital component of the CSP service offering, also considering that regulators are requiring companies to enhance the quality and substance of minutes. CSPs also assist boards with raising and addressing matters arising from meetings and are responsible for executing items within their remit, such as those relating to updating corporate records and related regulatory filings.
At the heart of their operations, CSPs are centres of excellence, upholding international best practice and good governance. CSPs are comprised of a broad spectrum of corporate services professionals with the appropriate knowledge, skills and experience across various industries. As such, CSPs are best placed to provide these board support offerings to ensure companies and their respective boards embrace and promote a culture of governance.
This piece was originally published in the 2023-2024 edition of the Bermuda Business Review 2023-2024.