Corporate governance answers to pandemic questions

Răspunsurile guvernanței corporative la întrebările pandemiei

Corporate governance answers to pandemic questions

Good corporate governance and well-functioning capital markets are always important, but they are all the more important now for economic recovery and strengthening resilience to possible future shocks.

Corporate governance fosters an environment of market confidence and business integrity that supports the development of the capital market. The quality of a company’s corporate governance framework is crucial for its dynamism and competitiveness. It also supports the management of environmental, social and governance risks and makes better use of the contributions of different stakeholders, whether shareholders, employees, customers, suppliers or communities, to the long-term success of the company.

The fluidity of the business environment during the pandemic period accelerated incipient transformations or highlighted others. To place corporate governance on the horizon of these transformations, I include here the 5 most important trends in my vision:

Concern for continued volatility

Executive directors will face the tactical and strategic implications of continuing political, social, economic and legislative volatility. There are also concerns about growth, digitalisation, reforms, inflation and the continued fragmentation of society. In order to address these challenges, the business environment, through collaborative and associative bodies, will need to exercise increased attention and closer interaction with representatives of the political environment and local community leaders.

Greater emphasis on human capital

Solving employee issues will receive more attention for three main reasons. First, emphasis is placed on the board’s implicit obligation to support the well-being of employees as a priority objective. The second is related to how issues such as return to work, health, safety and employee involvement already complete the corporate agenda. The third is the value attributed to the efficient practices of management and continuous development of human capital.

Recovery of corporate responsibility

The confluence of recent and expected developments will lead boards to support a culture of corporate ethics and compliance. Areas of focus that will achieve these goals include: corporate fraud controversies, marginalization of corporate compliance functions, consumer safety and service and product compliance crises, media coverage of major frauds and their consequences. Codes of ethics applied to management functions, and not only, will be reformulated and given greater organizational importance.

Increasing social responsibility

Increased expectations regarding corporate social responsibility will lead boards to monitor more closely the direction of the company’s adherence to CSR principles. This is particularly true of strategic decisions related to sustainability and business practices, organizational responses to social justice, corporate value initiatives, and the public position of the company and its CEO on political, economic issues, public health, and social.

Reassessment of risk profiles

The board’s approach to the issue of risk assessment will undergo a significant readjustment. The pandemic has confirmed that disasters can indeed occur, resulting in an increase in the company’s risk profile. Teams of risk management specialists will reconfirm the sources of critical risks, ensure the availability of crisis management plans and monitor the risks classified both in the category of unknown but probable risks and in the category of unknown but possible risks. These teams will balance the need for more clarity in identifying and monitoring risks, without distracting the work team or causing unnecessary distractions from management from the focus of the strategic agenda.

These and other challenges are expected to influence the way boards of directors operate and exercise their leadership role. They will respond by reshaping analytical processes and operational approaches, modernizing companies’ expertise in corporate governance and the behaviors of those responsible in this direction