ABSTRACT
Boards face a complex new reality due to COVID-19. The new environment is characterized by pressures and demands from various interest groups, heightened expectations for social commitment and corporate citizenship, and fundamental uncertainty about the future. These factors complicate board decision-making and challenge the shareholder-centric governance model that has guided boards and corporate leaders for decades. An organization’s ability to provide thorough, thoughtful and efficient advice and reach thoughtful conclusions on key issues will be a key aspect of an organization’s effectiveness in the post-COVID era.
As the novel corona virus SARS-CoV-2 pandemic rages across the globe, the economies of many countries are at a critical crossroads. The external shock to the economy from COVID-19 can have a severe impact on corporate governance. This article examines the potential for comparable corporate governance. For the economy to work well, society must first find a politically viable social balance. Historical crises such as the Great Depression and World War II have set the tone for generations by redesigning corporate governance institutions in many countries. It is not yet clear whether COVID-19 will have a similar impact, but from an evolutionary perspective, it could change patterns about which types of companies are more likely to survive and which are not. I have. We argue that while it accelerates ongoing trends to some extent, it also forces companies in other sectors to head in entirely new directions. He sees three trends: the need for resilience, an increase in nationalist policies in corporate law, and a growing concern for stakeholder interests.
Keywords: Health, Pandemic, Corporate Governance, Stakeholder, Human, Behaviour
INTRODUCTION
The pandemic will not necessarily entail a clean break – i.e., there will not be post-COVID corporate governance that is sharply distinct from its antecedent. The financial crisis of 2008/09 has already set some trends in motion that will accelerate because of the shock brought about by the novel corona virus.’ In this point, the pandemic is not unprecedented. While corporate governance tends to evolve gradually during times of peace, prosperity and growth, historical examples show that it takes leaps during periods of severe social and economic disruptions. Specifically, the structures that characterized corporate governance in the second half of the 20th Century emerged as a result of the disruptions during its first half, most of all the Great Depression and World War II, in some of the major wealthy jurisdictions.* Consequently, the United States and the United Kingdom developed dispersed ownership structures and deep capitals markets, while other developed economies, in particular Continental European jurisdictions such as Germany, had concentrated ownership and lacked similarly developed stock markets. Japan, another country deeply involved in and affected by World War II, emerged from this period with a unique cross-ownership structure. Ultimately, some boards decided to keep the dividend. Others have decided to suspend or cut them. In the UK and Europe, where policymakers and central banks are pushing for cuts, big banks and many companies are following suit. In the US, most major banks have pledged to keep their dividends, but regulators and experts disagreed on the wisdom of the decision. Whatever the final decision, it wasn’t easy getting there. This is just one example of the reality boards are facing as a result of Covid-19. The new environment is characterized by an increasingly complex set of pressures and demands from various stakeholders, heightened expectations for community engagement and corporate citizenship, and fundamental uncertainty about the future. These factors complicate board decision-making and challenge the shareholder-centric governance model that has guided boards and corporate leaders for decades.
First, they argue that organizations will abandon certain practices that are usually considered efficient in favour of resilience. In recent decades, companies have developed cross-border supply chain networks and just-in-time logistics that are becoming difficult to sustain as countries rebuild their economic barriers. Similarly, on the financial side, companies have slimmed down and reduced corporate ownership.
By taking on debt and returning excess cash to shareholders in the form of dividends and share buybacks, they “get fat.” All of these practices are beneficial in a stable economic environment characterized by growth, but harmful when businesses are weathering a storm.
The shareholder-centric model, which is based on what academics call “agency theory,” appears to be giving way to a richer model of governance that puts the health and resilience of the company at its centre. The pandemic has made all too clear that society depends on well-functioning companies to meet its most basic needs — for food, shelter, communication, you name it — and that companies do not exist solely to maximize returns to shareholders. It follows those boards, which by law are a company’s governing body, should be concerned not just with returns to shareholders, but with the full range of factors that enable the company to create value over time. Paradoxically, this enlarged purview does not diminish boards’ accountability to shareholders, but it does imply changes in the nature and scope of that accountability.
Whether Covid-19 is truly an inflection point for corporate governance is yet to be seen, but there is no doubt that the pandemic has challenged core premises of the agency-based model of governance in ways that have important implications for boards. This article discusses some of these challenges and proposes five ways how the work of boards may change in the post-Covid era. Directors must go through an annual self-assessment process to confirm their competence and readiness in each of these areas. In conclusion, we argue that resilience will increasingly demand that organizations commit to developing a healthy workforce. Therefore, the traditional human capital theory of the interaction of capital and labour should be complemented with ‘sound human capital’. This means that companies have an incentive to hire employees who do not fall into risk groups, raising concerns of discrimination. 2 However, this also means that, to the extent that businesses are required to physically interact, they will need to develop practices that avoid long-term workforce contagion. The degree of physical interaction depends on the type of work. The increasing digitization of the workforce, accelerated by the pandemic, could affect the relative bargaining power of capital and labour. The specific new balance will largely depend on the degree of digitization of an employee’s work and the specificity of their human capital. Digitization may also make human capital less company-specific, as employers may be able to attract more recruits. Taken together, these results allow us to draw more lessons about (comparative) corporate governance. Many jurisdictions are likely to reorganize their regimes. Corporate governance has often been equated with biological evolution. The pandemic shock has affected many businesses immediately, but it could change the larger economic landscape for years to come as lockdowns and smaller shocks come and go. Therefore, we may see a lasting effect
In biology, evolutionary processes are not always gradual, but there have been occasional (obvious) jumps in the fossil record that have influenced the punctuated equilibrium theory of evolution.2 Inheritance Mimetic rather than mimetic laws of evolution? Suddenly, companies (and countries) operate in entirely different economic ecosystems that can force rapid adjustments. Corporate law has evolved gradually in most Western jurisdictions since World War II, but COVID-19 has caused leaps and bounds that will determine the direction of longterm corporate governance around the world. There is a possibility. In particular, parent shareholder trends over the past few decades could be eroded in favour of other structures that are more likely to weather difficult times.
Another lesson is that corporate law depends on the larger social and economic environment. As Mark Lowe wrote in his 2003, “Social peace must be achieved before a country can produce”25. The pandemic may result in new corporate structures that are not necessarily efficient in terms of creating global optimums. In the context of the current crisis, they are likely to help address social problems and pave the way A wave of hope for long-term development. Corporate governance. but. Not return to normal
COVID 19 AND CORPORATE GOVERNANCE: PRACTICAL ISSUES
AND IMPLICATIONS
The rapid outbreak of corona virus presents an alarming public health crisis that the world is grappling with. In addition to the human impact, significant commercial impact is also being felt around the world. The virus knows no borders, so its impact will continue to grow. In fact, 94% of the Fortune 1000 has already seen the disruption caused by COVID-19. In a rapidly evolving situation; we are in the early stages of understanding the impact of COVID-19.
Meeting:
The 21-day lockdown and social distancing guidelines of the Government of India to avoid mass gatherings are subject to provision of a quorum under Section 103 of the Companies Act, 2013 (i.e. minimum attendance required for a valid assembly). Can affect. And this would affect the format of the meeting, namely General Assembly, B.O.D., or Administrators Meeting, General Assembly, his NCLT meeting convened. Personal company meetings become almost impossible. As such, small and individual shareholders are likely the most exaggerated compared to institutional investors as they have multiple platforms for engaging with company management. If the general meeting of shareholders is not held, there is a possibility that urgent business transactions will be delayed or the general meeting of shareholders will be postponed or postponed. That’s what it means it will have a big impact on your business. You can take any board Shareholder approval is required for many important decisions, such as important decisions related to company operations, appointment/reappointment of directors, execution of related-party and intra-group transactions that exceed regulatory thresholds, issuance of securities, etc. is required. Failure to obtain shareholder approval in a timely manner may result in legal violations and transaction failures. The only option for obtaining shareholder approval is by absentee ballot (that is, voting by mail or electronic means). Key issues related to closing the fiscal year. The Articles of Incorporation stipulate that shareholders’ meetings must be held within six months after the end of the financial year, with a maximum interval of 15 months between consecutive meetings. The fiscal year of most Indian companies he ends on March 31st. An MNC’s fiscal year normally ends on December 31st, unless the company receives another relaxation of rules from the Office of Corporate Affairs and ends another fiscal year. In global practice. Many companies have already sent out invitations to shareholder meetings that were to be held during the lockdown period, causing them to be postponed. Most Indian companies do not include such a clause in their Articles of Association (AoA), but usually the board of directors may decide to postpone the meeting at such an unforeseen time. If rescheduling is not possible, his AOA at the company will likely allow the meeting to be postponed, which actually has the same effect. The AOA normally authorizes adjournments of meetings by the chair with the consent of a quorum or unilaterally by the chair in the absence of a quorum. Corporations can also delay the conduct of general meetings. The COVID-19 pandemic may significantly limit availability, communication, and physical meetings to conduct final exams. This may result in delays in exam-related activities. Inability to conduct on-site audits and inspections and exercise corresponding access rights
Business continuity and recovery:
During the COVID19 outbreak, most businesses are struggling to maintain business continuity. Most companies face difficulties on the supplier side. This means that the supplier cannot provide components that are essential to the company’s manufacturing or service offerings. This leads to business/financial difficulties for the company. Mehran, H., Morrison, A.D., and Shapiro, J.D. (2011) concluded that the consequences of business failure can be limited to stakeholders. The failure of one bank can quickly spread to other banks, with severe consequences for the entire financial system and the macro economy. Moreover, rather than bankrupt themselves, banks rob all account holders of their lifetime investments and savings. A bank failure can have a huge impact on the entire financial system of the affected country. Business continuity is therefore one of the biggest issues facing companies. Companies should therefore take a proactive approach, especially with respect to the duty of directors to exercise reasonable care, diligence and skill. This includes risk assessment and minimization. similar extremes
Dividend and liquidity management:
Here another issue arises regarding dividends, liquidity and working capital. Requirements during the COVIDI9 outbreak and lockdown. There are few issues such as companies recently declaring dividends that have not yet been paid or companies that are currently deciding to pay dividends. Directors should consider the position of the company not only when proposing dividends, but also when making them. If the company becomes unable to pay a dividend, the directors are encouraged to discontinue the dividend and report it to the market. Any assessment of whether a dividend is appropriate should consider current and projected operating and capital needs, contingency plans, and the statutory obligations of directors under both statutory and common law. . Given the current uncertainty and unfavourable market conditions, it may be prudent to take a step back and assess the reaction of markets, the public and stakeholders. In that sense, it is also important to act according to the mood inside (managers, employees, etc.) and outside the company. Of course, liquidity and working capital requirements may come under pressure during such times and consideration should be given to available support/incentives including cash flow management, banking arrangements and refinancing, and moratoriums.
Disclosure:
Disclosure which is an essential ingredient of CO is the foundation of any structure o CO Bhasin, M. (2012). With respect to regulated entities and companies listed on a regulated market which are subject to various laws and regulations aimed at securing investor protection, adequate disclosure without delay of information which should be made known to the public should remain a top priority. Proactive boards of such companies should thus continue assessing the situation, communicating with regulators and providing public disclosure where it is needed or warranted as new information constantly emerges. Cautious assessments should be made to analyze the extent of the negative impact of COVID-19 related developments and to determine any corrective action that might be needed to mitigate such impact as far as possible, with constant disclosure of significant developments to the general public. In fact, Ministry of Corporate Affairs (MCA) deployed a new simple web-based form i.e. 23rd March; 2020 focusing a purely confidence disclosure and building measure to assess the readiness of the companies to deal with COVID-19 threat in India.
INITIATIVES RELATING TO CORPORATE GOVERNACE DURING
COVID-19
The COVID-19 pandemic has not only had a human impact, but also a significant economic impact that is being felt around the world. There are inherent commercial risks that impact business operations from disruptions to meetings, dividends, liquidity, disclosures, capital allocation, risk management and internal controls. Regulators should allow companies to hold hybrid shareholder meetings. This has forced companies to push forward with building their technology infrastructure. Management should review its share buyback program during a financial crisis like this. Compensation committees should focus on executive compensation issues. The Government has introduced remedies under the Companies Act 2013 and LLP Act 2008, as well as relaxation of compliance with the provisions of the SEBI (LODR) Regulations 2015. Key initiatives are contributing to COVID-19, launching eligible CSR activities and business resumption programs, amending LLP settlements to provide opportunities
Steps taken by Ministry of Corporate Affairs (MCA):
- The Ministry of Corporate Affairs (MCA) (vide Circular No. 14/ 2020 dated 8 April 2020) has encouraged the companies to take an decisions or urgent nature which regress the approval or members, other than items of ordinary business or business where any person has a right to be heard, through the mechanism of postal ballot or e-voting without holding a general meeting, which requires physical presence or members at a common venue.
- In case holding of an extra ordinary general meeting (EGM) is unavoidable, MCA has permitted listed companies (along-with other companies which are required to provide – voting facility) to Hold the same through video-conferencing (VC) or other audio visual means (OAVM)
Complemented with e-voting facility/simplified voting through registered emails. Without requiring the shareholders to physically assemble at a common venue
- The above Circular along-with MCA Circular dated 13 April 2020 also provides the procedure of conducting EGMs through vac or OAM facility such as requirement of clear disclosure with respect to accessing and participating in the meeting, providing two way teleconferencing or WebEx, among others. It also specifies that the VC or OAVM facility should allow at least 1000 members to participate on a first-come-first-served basis, with no such restriction on the participation of large shareholders (holding 2% or more shareholding). Promoters. Institutional investor. Chairman of the Committee. Director. Of KMP. Auditor, etc.
All companies using the VC or OAVM setup option must keep a recorded copy of the entire process safe. Public companies are also required to host this transcript on their website for greater transparency. The above circular also includes various other safeguards for transparency. Accountability and protection of investor interests
The MCA (see Circular dated 5 May 2020) has extended the above provisions for holding meetings through VC or OAM facilities to also include Corporate Annual Meetings (AGMs).
Conducted in calendar year 2020: A circular that omits the printed matter and Send annual accounts to shareholders – now you can sort and send the same copy E-mail address of shareholders in electronic mode only
SEBI procedure:
- Under the Listing Obligations and Disclosure Requirements (SEBI) Regulations, 2015 (“LODR”), the top 100 listed companies by market capitalization are required to hold an Annual General Meeting (AGM) within five months after the end of their financial year. I have. In view of the COVID-19 pandemic, SEBI allowed these companies to postpone the general meeting for one month. Also, listed companies with a fiscal year end of December 31, 2019 may hold general meetings until September 30, 2020.
Special measures under the Companies Act 2013 and the Limited Liability Partnership Act 2008 in relation to the COVID-19 outbreak of March 24, 2020:
No additional fees will be charged for late submissions during the moratorium period.
- BSB sessions will be extended by 60 days into the next two quarters. H. Until 30:00 September under Section 173 of the Companies Act 2013
- The Companies (Auditor’s Reporting) Rules 2020 will be effective from fiscal year 2020-21 instead of being effective from fiscal year 2019-20.
Newly incorporated companies are given an additional period of 180 days to file their Declaration of Incorporation.
CSR fund issuance for COVID-19
The Ministry of Internal Affairs and Communications has clarified that the issuance of the CSR Fund for COVID-19 is an eligible SR activity. Funds can be used for various COVID-19 related activities under the item number. (I) and (xii) Annex VII (I) and (xii) relate to the promotion of health care, including preventive health care and hygiene, and disaster management. In addition, according to General Notification 21/2014 of 18 June 2014, the points in Annex VII are broad and can be interpreted broadly for this purpose. Contributions to PM CARES are further clarified this fund is eligible for SR expenses under the Companies Act 2013.
Due to the COVID-19 virus pandemic, compliance with certain provisions of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR) has been relaxed.
- 40 (9) of the company secretary in practice regarding the timely issuance of certificate of conformity by registration number will be extended until May 31, 2020 (recovery period – 1 month).
- Relaxation of AGM and board/committee meetings, as noted above.
- Extension of timeline for filings under Regulation 7(3) with 1 month, Regulation 13(3) relating to Statement of Investors Complaint for 3 weeks, Regulation 24A relating to Secretarial Compliance report for 1 month, Regulation 27(2) relating to Corporate Governance report for 1 month, Regulation 31 relating to Shareholding Pattern for 3 weeks, Regulation 33 relating to Annual Financial Results for 1 month
- Relaxation of publication of advertisements in the newspapers under Regulation 47 gets exempted till 15th May, 2020.
“Companies Fresh Start Scheme, 2020″ and “revised LLP Settlement Scheme, 2020”:
In pursuance of the Government of India’s efforts to provide relief to law abiding companies and Limited Liability Partnerships (LLPs) in the wake of COVID 19, the Ministry of Corporate Affairs, has introduced the “Companies Fresh Start Scheme, 2020” and revised the “LLP Settlement Scheme, 2020” which is already in vogue to provide a first of its kind opportunity to both companies and LLPs to make good any filing related defaults, irrespective of duration of default, and make a fresh start as a fully compliant entity. It’s a one-time waiver of additional filing fees for delayed filings by the companies or LLPs with the Registrar of Companies during the currency of the Schemes, i.e. during the period starting from it April, 2020 and ending on 30th September, 2020.
CONCLUSION
This study shows that the rapid outbreak of corona virus is largely a human tragedy. Not only has it impacted people, but it has also made a huge commercial impact around the world. The virus knows no borders, so its impact will continue to grow. In fact, 94% of the Fortune 1000 has already seen the disruption caused by COVID-19. The COVID-19 pandemic involves meetings (AGM, EGM, BOD meetings, convened NCLT meetings), management, business continuity, dividend and liquidity management, disclosure, capital allocation and retention, and ultimately risk there are inherent commercial risks associated with business operations due to disruptions in Impact Management and Internal Controls. Among the measures introduced by the government, certain rules state that corporate meetings can only be held in a digital format without requiring the physical presence of members, so that such meetings are held in a way that protects them. Can do. Health and Safety of Shareholders and Directors. Regulators should allow companies to conduct hybrid general meetings (i.e. virtual meetings). COVID-19 has forced companies to step up their technology infrastructure builds. Directors and managers should proactively ensure that appropriate policies are in place to anticipate and mitigate the potential commercial impact of the pandemic and to ensure compliance with obligations and legal obligations. Essential. Boards have a duty to ensure that corporate governance is not just a framework of rules and “checkboxes”. Management should review the appropriateness of their share buyback programmes and proved that positive reduction in equity (i.e. free cash flow) would lead to increase in shareholders return. Company and its remuneration committee should emphasize on Executive Pay matters as it is very sensitive during COVID 19 outbreak which is stipulated in the introduction of this article. Corporate honchos are worried about well-being of their employees and business. Indian Government has initiated various relief measures under Companies Act, 2013 and Limited Liability Partnership Act, 2008 and announced relaxations from compliance with certain provisions of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR) due to the COVID -19 virus pandemic towards Corporate Governance which has discussed earlier of this article. Major two important announcement first spending of CSR funds for COVID- 19 is eligible CSR activity covered under Schedule-VII of Companies Act, 2013 and Secondly introduced the “Companies Fresh Start Scheme, 2020” and revised the “LLP Settlement Scheme, 2020” to provide a first of its kind opportunity to both companies and LLPs to make good any filing related defaults, irrespective of duration of default, and make a fresh start on clean slate as a fully compliant entity. This adds Feeder to the ease of doing business in India. Martin Hirt, Sven Smit, Chris Bradley, Robert Uhlaner, Mihir Mysore, Yuval Atsmon, and Nicholas Northcote (2020) suggest that organizations should have five visions: determination, resilience, reinstatement, redesign, and change readiness. He advocated the need to think and act across the board. To fight COVID-19. A more structured review of stakeholders. Pay more attention to how business and society intersect. Review and deal with the composition of the Board of Directors. Boards need to look ahead to the post-COVID era and assess whether they are ready to meet these new requirements.
Now that old assumptions are being overturned, they also want members to have a common understanding of the roles and responsibilities of the board and of their individual roles and responsibilities as directors. In the face of a flurry of COVID-inspired activity, it is important that boards do not lose sight of their core function as the governing bodies of the companies they serve.
The COVID pandemic is viewed as an unmanageable systemic risk from a risk perspective. Given these ongoing uncertainties, a recent McKinsey briefing note presented this as a situation requiring a scenario planning approach, identifying his three basic planning scenarios as follows: is proposing.
‘Rapid recovery’, ‘global slowdown’, ‘global pandemic and recession’. Scenario planning is important for both governments and businesses. However, it is not clear which of these scenarios will prevail. In short, investors, companies, and other stakeholders must work together constructively to weather his current COVID19 crisis.
REFERENCES
https://www.hks.harvard.edu/centers/mrcbg/programs/growthpolicy/covid-19-rewriting-rules-corporate-governance.
https://www.ncbi.nlm.nih.gov/pmc/articles/PMC8013220/.
https://www.oecd.org/governance/public-governance-responses-to-covid19/
https://econpapers.repec.org/article/sjajournl/v_3a11_3ay_3a2022_3ai_3a4_3ap_3a545-565.htm.
https://www.oecd.org/corporate/National-corporate-governance-related-initiatives-during-the-covid-19-crisis.pdf.
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Submitted by: Masab Ahmed Maaz, University Of Petroleum And Energy Studies, School Of Law, Semester VI Under the supervision of: Prof. Partha Pratim Mitra.
Author Bio
