Question 2

Pandemic offers lessons in better governance

While the initial response by governments around the world was rightly on assessing and responding to the imminent risks to human health and wellbeing, it is timely to reflect on what we have learned about our private sector governance structures as well.

Corporates need to work within these public policy priorities, but also consider how they can demonstrate tangible support to individuals or businesses that have been disrupted economically. We saw many corporates step up in this regard, from banks granting repayment holidays to airlines flexing refund rules and supermarkets altering opening hours and delivery services. often at great cost to the bottom line.

It became apparent there is a point at which the robustness of the modern corporate governance model rubs up against the requirement for flexibility in the face of a crisis. We saw several examples of corporates who suspended the operation of board committees during the height of the crisis and instead "collapsed" decision-making into an expanded board agenda.

We saw the emergence of a more collaborative ecosystem between regulators and the private sector in response to the crisis. In the corporate domain, ASIC (Australian Securities & Investment Commission), the ASX (Australian Securities Exchange) and ACCC (Australian Competition & Consumer Commission) ) all swiftly moved to relax technical constraints on the ability of corporates to raise capital, co-ordinate between themselves to optimise logistic chains, conduct meetings and file reports and accounts.

We think this may prompt regulators and corporates to seek opportunities to embed a greater spirit of collaboration in their dealings with each other. Perhaps, instead of a "why not litigate?" mentality, we have the chance to move towards a "why not co -operate?" one.

COVID-19 has shone a spotlight on the "agency conflicts" inherent in the modern corporate structure, as boards have been forced to grapple with tough decisions regarding the sharing of economic pain between shareholders, employees, customers, suppliers and landlords. A gradual movement away from the "shareholder primacy" model of corporate governance towards a more "purposive" view was already taking hold prior to the COVID-19 crisis.

History may one day demonstrate that, during this crisis, the most successful companies were those whose deep understanding of the interconnectedness of stakeholders in the enterprise best enabled them to balance their needs and intermediate an effective resolution of those conflicts.

Extract from Mannolini, J & Tuner, S. Pandemic offers lessons in better governance. The Australian . July 13 2020.

Question Explain Mannolini & Tuner 's idea behind 'gradual movement away from the "shareholder primacy" model of corporate governance towards a more "purposive" view. (6 marks)