This week the OECD published a report called The Future of Corporate Governance in Capital Markets Following the COVID-19 Crisis. We think it has very interesting insights and data that can help think about things that might change in coming years for a variety of reasons, including the pandemic. See what we think are the 10 key highlights from the report below:
- “…the road to recovery will require well-functioning capital markets that can allocate substantial financial resources for long-term investments and a corporate governance framework that gives investors, executives, corporate directors and stakeholders the tools and incentives needed to make sure that corporate practices are adapted to the post-COVID-19 reality.”
- “As the pandemic highlights new experiences with respect to ESG risk factors, companies should ensure that they have the expertise, information channels, analytical tools, and internal policies and practices that are specifically tailored to assessing their ESG risk factors.”
- “Corporate boards should demonstrate a leadership role to ensure that effective means of environmental, social and governance risk oversight are in place…”
- “With respect to shareholder meetings, countries should benefit from experiences during the COVID-19 crisis in order to advance or clarify their regulatory frameworks for remote participation. This should improve the possibilities for all shareholders to follow the meeting and as appropriate pose questions to corporate officers.”
- “…there are also concerns that companies are adapting the conditions for executive bonus programmes, switching performance metrics and ignoring missed targets in order to evade or mitigate otherwise unavoidable reductions in executive pay resulting from the pandemic.”
- “..there has been an increase in ownership concentration at the company level in global stock markets… the three largest institutional investors in the United States now hold a combined average of 23.5% of the equity in listed companies.”
- “Even before the COVID-19 crisis hit, however, the declining quality of the outstanding stock of corporate bonds and the increase in borrowing by companies with lower quality credit ratings were raising widespread concerns about excessive risk-taking in some parts of the corporate sector. One example has been the use of corporate bond markets to finance share buyback operations by high-risk non-investment grade companies. Since 2000, the share of corporate bond offering documents that explicitly mention share buybacks or dividends among the intended uses has increased from 2% to 11%.”
- “The pandemic has raised concerns and triggered lawsuits with respect to the quality of risk-related disclosures.”
- “Although most COVID-19-related lawsuits are yet to be adjudicated, their general focus is on inaccurate or misleading disclosure, stock price manipulation, insider trading and non-compliance with emerging health regulations.”
- “Responding to the COVID-19 crisis, many jurisdictions have made temporary changes to their insolvency practices. These temporary changes have been helpful in protecting otherwise viable companies from filing for insolvency due to the difficulties arising from the extraordinary health measures associated with the coronavirus outbreak. However, if such temporary changes remain in force, in the longer-term they may undermine one of the most significant objectives of insolvency regimes, which is to ensure a timely initiation of workouts or insolvency proceedings.”
For many people in the ESG world, a company without proper G mechanisms cannot really outperform in the long run (even if paying a lot of attention to E or S). The pandemic has certainly raised interesting debates and made other ongoing debates regarding corporate governance more visible. What comes next, we think, will be greatly influenced by how investors push for improvement in this area. Ethics and transparency will remain fundamental.
I hope you found this interesting. As usual, if there is anything we can help you with, please reach out.
CEO, Miranda ESG
Contacts at Miranda Partners