COVID-19: Impact on Corporate Governance Practice

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Dele Alimi

Coronavirus, commonly known as COVID-19, emerged in December 2019 and has quickly become a global pandemic that threatens the health of individuals and the welfare of societies on a vast scale, including its impact on global economic activity and growth.
Today, the COVID-19 crisis is well documented in the media and continues to propagate in many countries around the world, including Nigeria. While government policy responses will be required to address, as a matter of urgency, the risks to individuals and public health, the COVID-19 crisis is also having a real impact on economic activities and financial markets.

Particularly, the unfolding and profound uncertainties create great challenges for corporate organisations, their boards and their investors as they contemplate how best to navigate these difficult and dynamic times.

Generally, companies listed on global stock exchanges are required by law to hold Annual General Meetings (AGM) to present their statement of financial affairs to shareholders. In Nigeria, the Company and Allied Matters Act (CAMA) requires all Nigerian public limited companies to hold AGMs within 15 months of their last AGM.

However, with restrictions imposed on social gatherings as a result of COVID-19, it becomes glaring that holding these meetings over the next few months will be difficult or impossible.

It is expected that these conventional duties need to be considered in the contemporary context and with reference to the increasingly unconventional issues of the modern day business environment, and in times of global health emergencies such as the current COVID-19 outbreak, with its inherent commercial risks, such as impacts on business operations and meetings which may impede an ability to deliver good products and services to its customers and dividends to shareholders.

Commendation
Institute of Directors Nigeria (IoD Nigeria) commends the bold steps taken by the federal and state governments to curtail the spread of COVID-19 in Nigeria, especially by responding quickly to the country’s first known case and employing extensive efforts to trace other suspected cases or people who may have come in contact with the index case. It is also worthy of note that the government has undertaken extensive documentation and health checks for passengers entering the country, before eventually placing a ban on international travels and incoming flights on March 20, 2020.
The institute also appreciates the fact that since March 18, 2020, the federal and states governments and the Federal Capital Territory began shutting down of schools and banning large gatherings, with the government providing daily updates on the epidemiological situation and response.
The recent announcement by the CBN of a credit relief of $136.6 million to businesses affected by the coronavirus pandemic is also commendable and we applaud the recent advice by the Nigerian Stock Exchange for all listed companies to put in place adequate precautionary measures to ensure the safety of all stakeholders during their Annual General Meetings (AGM), while also urging companies to adopt the safety procedures provided by the NCDC in preparation for their AGMs.

Disruptive Impact of COVID -19 on Corporate Governance
As governments, regional authorities, and companies all over the world adopt measures to curtail the spread of coronavirus, which include total shut down of cities, states and even entire countries, there is obviously an impact on annual shareholder meetings which have been scheduled to be held in the coming days and months, in compliance with the extant provisions of the Memorandum and Articles of Association of various quoted companies and as required by the law. COVID-19 would have been for most companies and boards a proverbial ‘unknown unknown.’
However, many companies would have had in place disaster or crisis planning capabilities and/or business continuity plans, to deal with these sorts of unknowns or unanticipated shocks. This often comes under a company’s risk management function and then through risk oversight of management’s response to such risks at the board level. While some boards may have existing risk or crisis committees to help define decision-making or operational protocols, working with management to address unexpected emergencies, the urgency and devastating effect of COVID-19 makes it a matter for the whole board notwithstanding management’s role of managing company’s day to day risk expectations.
Therefore, as a way of addressing some of the challenges posed by COVID-19, some companies may have to choose between cutting dividend payments, cutting capital spending or cutting costs, possibly leading to redundancies. As they navigate potentially acute financial threats and market pressures, they may also be compelled to undertake undue risks that might provide a short-term investor benefit, but could also jeopardize a company’s financial stability or the sustainability of its business model. This reflects not only some level of enlightened self-interest, but also the moral imperative to contribute positively to the broader threats to public health and social stability.

Corporate Regulatory Requirements
As the impact of the disease becomes widespread in Nigeria and elsewhere, governments globally are imposing new rules of social gatherings with social distancing becoming the new normal. Therefore, as infections and deaths from the coronavirus continue to spread around the globe, it might be time for corporate boards to assess the impact a prolonged fight to contain the pandemic will have on their businesses. For Nigeria, in a bid to prevent the spread of the virus, the National Center for Disease Control (NCDC) recommended and various government have banned all social gatherings, including weddings, festivals, parades, concerts, sporting events, religious activities, conferences and other types of assemblies.

The Company and Allied Matters Act (CAMA) requires all Nigerian public limited companies to hold AGMs within 15 months of the last AGM. However, with restrictions imposed on social gatherings as a result of COVID-19 holding these meetings over the next few months will be difficult or to be more realistic, impossible. As a result of the above, it is anticipated that companies listed on the Nigerian Stock Exchange (NSE) may soon find themselves suspending their annual general meetings (AGMs) indefinitely or explore other ways of holding such meetings without flouting government directives and/or endangering the lives of their stakeholders. This may also mean that corporations intending to hold mandatory meetings such as AGMs, Extraordinary General Meetings (EGMs) and court ordered shareholders meetings may have to look for a “walk-around” arrangement that meets minimum legal requirements while still respecting the rules of social distancing at a time of a pandemic virus spread as this.

The Way Forward
With increasing restrictions arising from the spread of COVID-19, workable suggestions on how companies can navigate the challenge is pertinent. The situation may present a need for some regulatory framework that will accommodate and provide for unconventional issues of the modern day business environment, such as health emergency situations that have inherent commercial risks and impacts on businesses and corporate governance obligations. There is, therefore, a great need for the government and relevant agencies such as Security and Exchange Commission (SEC), Corporate Affairs Commission (CAC) and the Nigerian Stock Exchange (NSE) to consider reviewing and amending existing regulatory frameworks that are guiding corporate organisations to accommodate and provide for emerging issues arising from COVID-19 and related matters.

Globally, Stock Exchanges have taken a number of steps in response to the outbreak. Some of them are extending the reporting period for annual results from March 30, 2020 to April 30, 2020, waiving initial an annual listing fees for issuers registered in Hubei province; and encouraging companies to hold their meetings electronically.
In the UK, a guidance for holding AGM in the midst of coronavirus was jointly produced by Slaughter and May and The Chartered Governance Institute. The guidance offers five (5) suggestions reflecting the UK company law and associated regulation. They include adapting the basis on which you hold the AGM, delaying the convening of AGM, postponing the AGM (if permitted under the Articles), adjourning the AGM and conducting a hybrid AGM (if permitted under the Articles).

Furthermore, in the USA, the Securities and Exchange Commission has issued “conditional” regulatory relief, providing companies impacted by the virus up to 45 extra days to file disclosures due between March 1 and April 30, including quarterly reports.
In Nigeria, while companies may want to move to a virtual or hybrid meeting in order to deal with the challenges presented by Covid-19, the lack of facilities and/or capacity, may force them to determine that the better course of action for them is to postpone or adjourn their annual meetings with attendant consequences. To provide succor for corporate Nigeria therefore, Government should consider putting in place a regulatory provision for companies to adopt either virtual-only or hybrid (with both in-person and virtual options) meeting structures to cater to unconventional and emergency situations in the business environment, going forward.

More so, given that companies across the globe are currently considering the manner and speed in which they communicate to shareholders on the perceived risks that they face from the outbreak and the potential impact on their operations and supply chains, as well as the need for a hitch-free filing of records, it becomes important to consider and adopt a new regulatory provision that facilitates uninterrupted meetings, exchange of information and submission/filing of statutory records in times of business environment emergency.

Conclusion
IoD Nigeria notes the risks posed by the coronavirus to global economic growth, emerging markets economic growth, and the Nigerian economic growth. However, we believe that based on the ongoing efforts made by the Federal and State Governments and all well-meaning stakeholders, the coronavirus could be contained much sooner.

We also note that addressing systemic risks responsibly is a moral and economic imperative both for regulators and companies. It is therefore on this note that we wish to call on the government to put in place measures to consider and adopt virtual and or hybrid regulatory windows in order to ensure that companies fully comply with their legal obligations and duties at such a time as this presented Covid-19 without having to take matters into their own hands.

We conclude that COVID-19 clearly meets the criteria of a systemic risk, which amongst others, builds over time, is interactive and synergistic and, once in play, is difficult to control. Its drivers tend to be cumulative and/or interdependent, and could re-occur, resulting in far-reaching impacts, shocks or even system-wide failure. Hence the need to put in place some new regulatory mechanisms that can help address its impact on the business environment.
Finally, while we note that the rise in the number of registered cases of the coronavirus infection and attendant restrictions by government in recent days is a worrying sign that all is far from being well, we call for increased efforts by the Government and all stakeholders to work together to stem the tide of the pandemic and impact on humans and on businesses.

Alimi is the Director General/CEO Institute of Directors, Nigeria