International Corporate Governance Network emphasises importance of ‘social factors’ in response to COVID-19
11/05/2020
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The International Corporate Governance Network (ICGN) is an “investor-led” organisation. While it is true that the majority of members are major global investors, their membership is also open to others, such as issuers and advisers (see its current members HERE). The ICGN’s mission is to promote “effective standards of corporate governance and investor stewardship to advance efficient markets and sustainable economies worldwide”. Pre-COVID-19, its two major international gatherings a year were well attended, and provided a chance to socialise and network with the planet’s governance good and great in a neutral setting.

In light of COVID-19, the ICGN published an open letter on 23 April 2020 advocating shared responsibility of ‘social factors’ between board directors and investors to promote long term success of companies.

It emphasised the broad need for companies to:

1. Prioritise employee safety and welfare while maintaining financial health and solvency;

2. Consider stakeholders including the workforce when making capital allocation decisions;

3. Publicly define their social purpose with a long-term view on social responsibility and sustainable value creation; and

4. Communicate this comprehensively with all stakeholders to build resilience into its’ strategy and operations.

With reference to remuneration, ICGN advocates executive pay policy that reflects the experience of the overall workforce, including staff redundancies, furlough programmes and pay level reductions. It recommends long term financial health to take precedence over bonus considerations and financial sacrifice from ordinary staff to be appropriately shared by executive management.

No mention was made of shareholder returns, relative or otherwise.

Other governance priorities for companies in the current environment include the responsibility of health and well-being of staff, maintaining dividend payments to support the livelihood of investors, raising additional capital to sustain operations, virtually engaging with investors through the crisis and publicly disclosing the response and strategy to the COVID-19 pandemic preferably in the annual report.

Governance priorities for investors in the current environment also include focusing on the long-term sustainability of companies at the expense of short-term returns, continuing to engage boards on climate change, encouraging sustainable capital allocations that strengthen the balance sheet, transparency of short selling activities, comprehensive monitoring of companies for material departures from corporate governance standards and continue to prioritise sustainability and stakeholder issues that affect the company’s long term prospects.

The detailed list of ICGN governance priorities for companies and investors can be found using the link HERE.

© Guerdon Associates 2021
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