Topic "Key corporate governance implications of the COVID-19 pandemic. "

Running Head: Covid-19
Covid-19
Covid19
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Contents
Introduction    3
Key corporate governance implications of the COVID-19 pandemic    3
Conclusion    13
References    15
Introduction
With the rapid development of the situation, still in the early stages of understanding the impact COVID-19 will have. However, some important implications for corporate governance practices and standards have emerged. Due to this pandemic, a few industries have consider (and implemented) salary cuts on case-by-case basis and across manager levels. The impact of some decrease on several administrative arrangements should be considered. Such as, certain arrangements, for instance employment agreements as well as severance pay arrangements, might have "just cause" reserves that are triggered by lower basic wages. This allows executives to terminate services or receive kind severance payments. Additionally, if the control rights change in the future, the salary reduction may have a negative impact on the calculation of the golden parachute tax for executives, because the golden parachute tax is depend on average of five years of compensation, so the salary decrease will diminish the increase and average the possible payment The amount of the golden parachute tax (Ertel, 2020). Lastly, a few industries that formerly granted stock alternative and SAR have considered pricing these rewards based on market performance. Almost all the equity strategy of listed industries prohibits the repricing of the stock options and special zone pricing without shareholder approval. Additionally, according to Article 409A of the Internal Revenue Law, the repricing of underwater stock options or special drawing rights is likely to be regarded as extension of the awards or will have serious unenthusiastic effects (PATEL, 2020).
Key corporate governance implications of the COVID-19 pandemic
Since mass gatherings are discouraged or prohibited in many parts of the world, it is largely no longer possible to hold face-to-face company annual shareholder meetings (Cejnek et al., 2020). Companies have been discussing their contingency plans with companies, including the option of delaying or postponing meetings, moving to hybrid (partly physical, partly virtual) AGM or using only online virtual AGM when allowed. There are number of AGM cancellations in Finland and postponements in Germany, and further announcements will be made in the coming days and weeks (Corporate Governance Nigeria, 2020). This also means that dividend payments and fund-raising institutions that require approval by the annual general meeting will be delayed. In some jurisdictions, these changes face legal challenges. For example, in France, companies must provide the option of attending in person; some governments have waived this obligation. The articles of association of some individual companies may also make certain choices difficult. Guidelines such as joint publications based on the recommendations of the British law firm Slaughter & May to determine the legal status of companies began to appear. Normally, do not encourage companies to hold online-only meetings because this destroys the opportunity for interaction between shareholders and the board. Virtual meetings must now be held, and to encourage companies to ensure that when possible, shareholders still have the opportunity to raise questions to the board (ElFayoumi & Hengge, 2020). Once this crisis has passed, people will encourage the company to resume normal in-person AGM arrangements while retaining the virtual option as part of the "hybrid AGM". This utilizes technology to enable maximum access rights as retaining capability to hold the board accountable by providing a physical attendance. Taking into account market and economic conditions, many companies will miss temporary as well as lasting incentive strategy goals (Fajar, 2020). This will have a significant impact on the compensation awarded to executives.
In many companies, this matter may not be a priority before the annual general meeting, but teams can still provide guidance or questions. Encourage investee companies to consider the following:
i. Although the impact of the virus is beyond the company's control, shareholders generally do not expect high executives to receive generous bonuses after a year of loss.
ii. Recognize that the compensation committee may make adjustments to the plan to reward those executives who demonstrate outstanding skills during difficult times in the future. There is a need to pay close attention to the situation of individual companies, including whether the company treats employees and executives consistently (He & Smith, 2020). For example, if the company makes it difficult for workers to self-quarantine, then will strongly oppose any attempt to compensate executives for lost bonuses.
iii. For companies whose service demand has increased abnormally due to the virus and related government measures, usually expect the compensation committee to treat them as windfall gains and prepare to lower their salaries when appropriate.
Some executives in severely affected sectors such as aviation have voluntarily reduced their salaries, including some reducing their basic salary to zero. Although don't need investors to take such moves, if the CEO can make these moves in extreme situations, it may increase employee loyalty in the long run.
Liquidity & Capitalization Considerations
Mobility is one of the key areas of concern during COVID-19 pandemic. Given that the crisis was unexpected as well as extremely instant; most companies did not foresee a sharp slowdown in the international financial system after the crisis broke out. Hence, as a part of common supervisory duties during the pandemic, directors must get ordinary updates on the company’s capital and liquidity from management as well as make sure that some problems related to this are solved (Beaupain et al., 2008). A particular topic for directors to considering in this regards is whether to suspend business’s ordinary dividends or to carry out a stock repurchase plan in advance to preserve cash. Usually, this requires weighing various factors, for example the probable downward pressure on business’s stock price due to the suspension of dividends, and the advantages of repurchasing the stock when price is comparatively low. Influential agency consulting company ISS recently issue guidance before 2020 agency season, recommending that the BOD conduct stock repurchases under the current circumstances and may openly accept "strong criticism and reputation damage (Law, 2020). However, ISS is not so strict about potential changes in the company's dividend distribution method. He said that the board of directors must have "wide discretion" in this regards (Beaupain et al., 2008). If you decide to suspend dividends on ordinary shares, you should seek the advice of a lawyer regarding the announcement time of the decision relative to further divident record date. In addition, if the business does...