University of sunderland

Corporate governance in regard COVID-19 in general

In light of the Covid-19 pandemic, corporate boards have been compelled to make arduous decisions. The matter of dividends presents as a typical example. Normally, the resolution of such a matter would entail the application of a predetermined dividend policy, adherence to established precedent, or the selection of a suitable payout amount informed by shareholder anticipations and the company's earnings during the relevant period. This year, the COVID-19 pandemic has had a devastating effect on the economy, resulting in increasing levels of uncertainty about the duration and severity of the crisis. As a result, the consideration of the option to balance and evaluate various aspects has become a complex and challenging question, particularly for corporations who possess sufficient wealth to entertain such considerations.

Corporate boards engage in discussions surrounding dividends for multiple reasons, including satisfying shareholders, providing support for individuals reliant on dividends, complying with government mandates, and assessing the impact on overall reputation. Typically, such discussions are of brief duration. During the aforementioned circumstance, the process of reaching a verdict through external correspondences entailed a duration exceeding one hour. After careful consideration, the board of directors elected to sustain the distribution of dividends. The advancements were impeded by certain parties. UK and EU officials advocate for the implementation of fiscal restraint, which ought to be embraced by both financial institutions and corporations. Despite facing protests, banks in the United States continue to maintain their dividend payouts. Obtaining the selection is a challenging task.

Local authorities are addressing the pragmatic implications resultant from the Covid-19 pandemic in the following manner. The contemporary business context is characterized by a confluence of factors including stakeholder pressure, heightened expectations of corporate citizenship, and the presence of radical uncertainty. These variables create confounding factors in the process of board decision-making, thereby presenting a formidable challenge to the prevailing shareholder-centric governance model that has guided the actions of boards and corporate executives for quite some time.

A governance model that prioritizes robust health and sustainability may supersede a shareholder-centered paradigm that relies on "agency theory" within academic literature. The COVID-19 pandemic has brought to light the criticality of dependable corporations for providing essential necessities like sustenance, housing, and communication services, beyond the mere pursuit of elevating investor profits. Hence, it is incumbent upon boards, serving as the official governing entities of corporations, to prioritize not solely the attainment of favorable shareholder returns but also the comprehensive spectrum of traits that facilitate a company's capacity to engender value for the long haul. Paradoxically, the increased authority bestowed upon boards of directors does not alleviate their accountability to shareholders; however, it does alter the nature and expanse of such accountability.

The present global health crisis known as Covid-19 has potentially served as a catalyst for a restructuring of corporate governance practices. Although its impact on the matter remains uncertain, it is indisputable that the pandemic has presented notable challenges to the prevailing agency-based governance model, thereby engendering consequential ramifications for board of director’s operations. The present article delves into various challenges and proposes five potential changes in the responsibilities of the board in the aftermath of the Covid pandemic. During their routine self-evaluation, boards would need to ascertain their competence and readiness in various domains.

Focus on Stakeholders: The pandemic has highlighted the significance of all stakeholder groups for a company's survival and success, beyond shareholder primacy. As customers disappeared, certain businesses struggled. Some downsized staff, while others faced supply chain issues, debt, or funding shortages. Since the crisis, many boards prioritize updating on stakeholder groups and the health of employees and customers as top priority. Some investor groups also advocate for employee safety.

The crisis affirmed the Business Roundtable's 2019 statement on corporate purpose, in which 181 CEOs prioritized five stakeholder groups over shareholder primacy. Post-crisis, boards and top management will struggle to assert any one group's "primacy." The crisis revealed that a company must prioritize various interests, including employees, customers, public need, and shareholders at different times. Covid-19 showed that interests and company situation are crucial determinants.

The Covid-19 pandemic highlights the need for boards to critically evaluate the level of interaction between businesses and their primary stakeholders. One option could be to request that management uphold the newly implemented practice of providing regular updates to the board regarding the status of various departments. Alternatively, a more structured approach could involve establishing objectives and a reporting system to aid the board in monitoring the company's progress for the benefit of its stakeholders in the long run. Boards should take on a more proactive role in ensuring that decisions made regarding stakeholders align with their responsibilities to both the groups involved and the overall longevity of the company. Directors need to possess a mutual understanding of the firm's mission, tactics, stakeholders, and responsibilities towards them.

It is likely that corporations have duties towards their stakeholders. There is usually no proper system in place for overseeing commitments made to non-shareholder stakeholders or monitoring the company's progress. If such matters arise, they are not discussed in the boardroom where shareholder achievements are the primary focus. Boards tend to overlook the opinions of stakeholders when making strategic and M&A decisions.

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