Relevance of Corporate Governance during Pandemic

This article discusses in detail the measures and additional measures that an efficient managerial chief through good corporate governance can take to ease the crisis during pandemic. This article also discusses the relationship Of Corporate Governance and Board of Directors of the Company.
Estimated Reading Time: 8 minutes

Introduction

The term corporate governance can be described as a set of rules, practices, and process through which a company is managed and controlled. The corporate governance is enforced by the company’s board of directors. The company’s reliability, integrity and transparency are dependent on how good the governance of the company is. If the management failed to provide good governance, then the same will also impact the financial growth of the company. The term governance can be understood as the set of rules, controls, policies, and resolutions put in place to dictate corporate behaviour. Proxy advisors and shareholders are important stakeholders who indirectly affect governance, but these are not examples of governance itself. The board of directors is pivotal in governance, and it can have major ramifications for equity valuation[1].

Importance

A company’s corporate governance is vital to investors since it shows a company’s direction and business integrity. A sensible corporate governance helps corporations build trust with investors and also the community. As a result, corporate governance helps promote monetary viability by making a long-run investment chance for market participants. Most corporations attempt to possess a high level of company governance as for several shareholders, it is not enough for an organization to just be profitable; it additionally must demonstrate smart company citizenship through environmental awareness, moral behaviour, and sound company governance practices. smart company governance creates a clear set of rules and controls within which shareholders, directors, and officers have aligned incentives.

Relationship of Corporate Governance and Board of Directors of the Company

The board of directors of the company are the primary neutral influencing group on corporate governance. They are elected by the shareholders of the company or are appointed by the different elected members who are also represented as shareholders of the corporate entity. The board has the duty to make such decision, with respect to the appointment of different officers for the company, making of the dividend policies of the company. In some cases, the board of the company has an obligation with regard to maximizing the financial assistance of the company.

The directors have to think beyond the league so as to maximise the investment in the company. It is also the obligation for the directors to make policies in such manner that it will be beneficial for both the social and environmental purpose. Boards are typically created of within and freelance members. Insiders are major shareholders, founders, and executives. Freelance administrators do not share the ties of the insiders; however, they are chosen thanks to their expertise managing or directional different giant firms. Independents are thought of useful for governance as a result of the dilute the concentration of power and facilitate align stockholder interest with those of the insiders.

The board of administrators should make sure that the company’s corporate governance policies incorporate the company strategy, risk management, responsibleness, transparency, and moral business practices. Public and government concern concerning company governance tends to wax and wane. Often, however, extremely published revelations of company actus rues revive interest within the subject.

Corporate Governance and Pandemic

The response to the Covid-19 pandemic, has been, at first a minimum of, a medical one. For weeks, we have been exposed to ever grimmer reports on infections, incidence, and sadly, mortality rates. As weeks pass, with the pandemic progressing intense, there has been a decoupling within the coverage, with the main focus percolating step by step, however inevitably, from the medical to the economic – the 2 being inextricably interlacing. Countries, multi-nationals, airline carriers, internationals chains and little businesses all assess the economic prices of the pandemic, in terms of economic contraction, deficits, debt limiting, redundancies and state rates, rescue packages etc.

Challenges during pandemics

The challenges in front of the board of directors for the purpose of maintaining good governance during the challenges of pandemic are listed down below as follows:

  1. Revenues and Safety of the Company.
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One of the greatest challenges in front of the board of directors of the company to manage the revenue and safety of the corporate entity at the same time. The recent PIL – against the management of Jubilant Generics – may be the first of many such cases. Board and management have to be clear about the risks they are willing to take, and the mitigation measures they are adopting. Following the guidance released by the government is the starting point, but boards should not hesitate to bring in more best practices if needed. Not to forget, mitigation measures cost money and that may be hard to find in an already crunched situation.[2]

The management of the company should ensure that the employees of the company are safe and healthy during such pandemic. However, they should also make such plans and policies that will ensure their investors and clients regarding the plan of action that should be taken by the corporate entity to render the promised services to the clients and at the same time to lower down the risk of loss towards the investors of the company.

  • Another challenge faced by the board of directors of the company is to provide services with the limited resources and limited workforce. In the present situation of COVID 19, the governance of board of directors of the company come into picture. The board faced the challenge to manage the work and deliver the services to their clients and also manage things in such a way that the resources will be used at the minimum level and without contracting with each other, the work can be done remotely. To overcome this challenge in today’s scenario the work from home to the employees of different entities has been granted.

Hence, it is the obligation of the management to take quick decision in this pandemic type situation so that the goodwill of the company can be protected.

  • Another major challenge in front of the management of the company is to ensure that the interest of the shareholder and the social responsibility of the company can be discharged at the same time. COVID 19 is spreading at a large scale in different countries, hence making unable for the companies to open their workplace and deliver services at the rate at which they were delivering prior to the breakout of the pandemic. In this situation management is facing the challenge to tackle such circumstances.

US customers refusing to recognize force majeure in India, German industries restarting their production to find that their Indian suppliers are still shut down, essential goods manufacturers finding that ports are not open for import/export of those goods and numerous other similar instances, which will tempt boards of large companies to seriously consider localized supply chain and maybe even in-source certain critical components. A lot of global companies will probably consider moving out of “high risk” countries such as China and “high risk” zones such as urban population centers. [3]

  • In India, there is a lot of clamour concerning the de jure questionable needs from the govt. mandating workers to not scale back wages and different benefits, not terminate the utilization of personnel. unnecessary to mention, while not providing any purposeful economic relief to the business, the govt. is being suspect of a lopsided approach as way because the employers are involved. On the flip facet, it is equally true that in a very extremely unequal society admire Republic of India, such measures are also needed to mitigate liquidation of the overwhelming majority of workmen on rock bottom rung of the economic ladder.
  • In lightweight of this, boards ought to seriously contemplate their response in a very holistic manner keeping in mind not solely economic requirements and legal compliance, however additionally humanitarian and reputational fall outs. we have seen variety of firms announce pay cuts at the highest level whereas continued to pay at the centre and also the lowers levels with no abatement for the nonce. this era can check the resolve of the board and force them to settle on priorities. every such selection can associate with its professionals and cons – none maybe starker than redundancies and wage cuts.
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Tools to be used

Another kind of challenge faced by the management during the pandemic is the tools that can be used for rendering of the services to the clients and the investors of the company.

Role of Director During Pandemic Situation

The Companies Act recommends that the executives are depended to the advancement of the prosperity of the organization, where they serve office, and will undoubtedly act genuinely and in compliance with common decency to the greatest advantage of the organization. Chiefs will undoubtedly practice a level of care, determination, and ability in over-seeing the activities of the organization.

Where the governing body are required to direct the administration of the business, the board ought to guarantee it has adequately refreshed data to play out their administrative capacity viably. The board ought to have the option to mediate when they accept the executives are settling on material choices. This ought to be so despite the current circumstance, however, ought to be particularly so as a result of it.

Accompanying measures

Chiefs are bound inside the transmits of the Companies Act and the Memorandum and Articles of Association of the Company. Executives cannot act past the boundaries of law and the organization resolutions. Where no such limitations apply, chiefs may in any case, look to alleviate the calculated difficulties brought by the Covid-19 pandemic through the usage of the accompanying measures:

  • Agree to essentially decrease the notification time frame for the assembling of a conference of the top managerial staff; and
  • Where no such gathering can be assembled because of movement limitations, or postponements in the receipt and transmission of notification by post, the chiefs can consent to determine matters by the execution of archives in isolated partners, whereby each instrument will be executed by various executives separately, with each duplicate viewed as a unique, and all of which together will comprise one and a similar instrument.

Conclusion

As the old saying states, the tough situation shows the real capability of a person. Thus, in situation like COVID 19 which is also declared as a pandemic, the role of the management of the company becomes difficult. The managing power of the corporate entities has to ensure that the smooth functioning of the company will take place in such serious situations. The obligation is on the part of board of directors of the company to choose such best possible way so that the work can be done by using minimum resources and workforce.

To overcome this crisis situation the companies situated in all over the world has given the employees work from home facility. This step will ensure that both the health of the employees will be maintained and at the same time services can be rendered within the stipulated time period. However, there are certain situations which will result in pay cuts of the employees. So as to boost up the morale of the employees the managerial department should ensure time to time counselling session for the workforce of the company.

By following the abovementioned precautions, the managerial section of the company can secure the interest of the investors, clients and also can secure the goodwill of the company during the time of pandemic. 


[1] www.investopedia.com/terms/c/corporategovernance.asp

[2] www.mondaq.com/india/corporate-governance

[3] Supra Note 2

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