January 4, 2022

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Extract from ‘Challenges are thrown in Corporate Governance during COVID 19’ (Sonjai Kumar2021, Academia Letters (www.academia.edu, accessed 04-01-2022))

According to Gupta (2010), corporate governance safeguards accountability, transparency, fairness, and responsibility of firms on legal, social, and economic grounds are crucial for the well-being of every entity of a nation. Corporate governance helps in achieving organisational goals, controlling risk, and assuring compliance. It helps in establishing formal communication between stakeholders of the firm and thereby indicates the efficiency and effectiveness of the firm’s management. COVID 19 has escalated the efficiency and effectiveness of the firm’s management. It necessitates the importance and significance of sound and transparent corporate governance among organisations.

The challenges thrown by COVID 19 on corporate governance stressed the lacunas and gaps in the working of the Board, remuneration committee, the effectiveness of risk management, and limitation of risk management framework and also pointed out that corporate governance is highly skewed towards the interest of shareholders and ignores other stakeholders such as employees, taxpayers when Government bails out companies, liquidity challenges, etc. Since corporate governance is a facilitator of the entire conduct of the organisation and the successive crisis has exposed the weaknesses in corporate governance. In the current living creatures, COVID 19 has given the maximum impact on the world forcing people to think beyond current practices and look for changes for a higher level of sustainability.


Challenges in Corporate governance


At the onset of the pandemic in January 2020, Board members of the firms could not foresee the coming risks and therefore could not take up the mitigating action. Also, companies were perhaps not prepared for this kind of stressful situation. Some companies do perform stress testing; however, they are more for academic purposes and mitigating action plans are not prepared to deal with those risks. So as a result, Board could not steer the Company to the safe harbours

The Board needs to have the right mix of experience and age, and the Board of Directors need to perform a serious performance appraisal. The corporate failures during COVID 19 identify the need to change the corporate governance due to the lack of ability of the Board, managers, and advisors to foresee or better react to the crisis.

Remuneration Committee

During the peak of COVID 19 millions of workers lost their jobs and companies had challenges in paying their salaries. There was a lack of liquidity in the system and corporate did not have enough cash to pay salaries to thousands of workers. Many businesses did not have enough liquidity to pay the salaries to the employees for one month after the COVID crisis. As part of financial planning, families are encouraged to keep the cash reserve for six months to one year, but corporate did not have enough cash to pay the salaries to thousands of workers. The remuneration committee did not play its role as cash were returned to shareholders in a form of dividends and stock buyback option to keep the stock price high.

Risk Management

During COVID 19, the risk management was also not able to perform up to the expectation as they could not highlight the expected risk. Risk function is the eyes and ears of the organisation to anticipate and raise an arm bell. They are like the captain of the ship looking for a possible iceberg and alerting the engine room. The risk professional can smell the risk.

Our risk management frameworks do not have buttons that prompt taking immediate actions rather than leaving actions for decision-makers. It’s like having an immediate sprinkler system as soon as the fire is visible or smoke is there. If we need to protect the world from the next disaster that may come anytime in the presence of global warming, we need to tighten up the risk management framework that everyone must agree on as a part of the national constitution. The losses to human life and economic cost are enormous, we have to have a sprinkler system and decision-making cannot be left to choose. It would help the organisation to identify its risk literacy that will help in developing the risk culture. Risk literacy helps solve complex problems.

To facilitate good risk management, there is a greater role of CRO in communicating the risk information for the Board, management and stakeholders. To increase effectiveness to ERM, there is a need to improve the governance and risk culture. The failure of risk management during COVID 19 at the global level stresses the need for risk management qualification to help better understand risk management and apply it in the right context. There is also a need for standardizing the risk management qualification given different needs and too many providers. There is also a need to increase the risk literacy of the Board members to guide the corporate ship better and it would be helpful to have at least one independent director with risk management experience and qualification.

Given the challenges in the emerging COVID environment, there is a greater need to improve corporate governance to handle the future situation better. Environment risk may pose an even more severe impact and the world would be ready and prepared to deal with it. Also, some of the techniques used in another field such as aerospace or tracking of key risk indicators during the flight could be used in sailing the corporate ships. Such fields have many more risk parameters and uncertainties.

Dick May & Chris Mackin (2020) advocated that larger, publicly traded companies at risk of bankruptcy will only be improved if government relief is conditioned upon structural changes in equity ownership and governing control. They further say that the structural changes should allow the creation of long-term profit-sharing with the employees. Also, the choice of Board representative should take place in consultation with the employees and independent Directors. Gelter, M, and Puaschunder (2021) highlighted the need for nationalism and/or protectionism in corporate law. There is a very strong voice coming about moving away from the shareholder focus approach to the stakeholder focus approach.


There is not much improvement between the 2008 crisis to COVID in terms of many corporate functional parameters not well fitted and functioning. Corporate governance in its current form has holes that need to be plugged in to handle any future crisis better. There is also a need for the right mix of Board members to steer the Company to safety. Both crises have shown the gaps in the working of remuneration committee mainly focusing on shareholders. Liquidity has been the key challenge leading to losses of millions of jobs. The risk management framework seems to have silent components that do not trigger the decision-making at a right time. There is a need to have some sprinkler system in the framework to act when there is a fire. One key theme that is coming out is moving away from shareholder focus to stakeholder focus corporate governance. It also seems from nationalism that we are moving to square one.

“Empathy economics has swung around how a product or service is packaged and marketed to client emotive response. Doing good hardly ever enters a company’s parlance as a means to boost a balance sheet. Companies that have been allowed to operate when the lockdown was announced are certainly making huge profits. Yes, they may also have a social responsibility initiative that they embarked upon in helping the less fortunate, but how about employees who have made the gains possible? Sharing the company’s gain with its employees should be recognized by sharing in the gains they have contributed to.” – Iqbal Survey (2020).

About the author 

Sipho Nkosi

Sipho Nkosi is an experienced Legal Professional with a demonstrated history of working in the legal services industry. A strong legal professional with a B Proc degree focused in Law from the University of Natal (Howard College), with a keen interest in corporate governance and a profound insight into Compliance Risk Management. Skilled in litigation and procedural law, and an affiliate member of the Compliance Institute Southern Africa.

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