015 December 2021

Good Corporate Governance and Corporate Social Responsibility during the covid-19 health crisis

José Ignacio Olleros

In the current covid-19 crisis, compliance with the duties of diligence and loyalty of the managers takes on special importance, which entails the observance of the best practices of Good Corporate Governance that must be especially observed at this time in defence of the company’s main asset, which it is crucial to protect: the health of the workers.

Among the recommendations to be adopted, I would highlight, firstly, the adoption of measures aimed at ensuring the company’s economic efficiency, precisely to promote profit and its long-term continuity. It is clear that the extension of the deadlines for the preparation and auditing of accounts provided for in Royal Decree-Law 8/2020 is an opportunity available to the managers to reflect on and rectify, if necessary, the initially planned resolution on the distribution of profits finally adopted by the General Meeting of the company given the current economic circumstances and the forecasts for the future. Likewise, the effect of covid-19 as a “post-closing accounting event” for the 2019 financial year is of sufficient importance for its existence, as well as the consequences that may derive from it, to be included in the notes to the financial statements, in the management report and the statement of non-financial information.

Another measure of economic efficiency that should be taken into account in the interests of companies’ proper, transparent, supportive and ethical management is that relating to the containment of the remuneration of the company’s directors. It should be recalled that Article 217.4 of the Law on Capital Companies requires that such remuneration be in reasonable proportion to the company’s economic situation and take into account the company’s long-term sustainability.

Secondly, he stressed the importance of reinforcing the appropriate decision-making procedures of directors, who should be fully committed to the proper dedication and adoption of the necessary measures for the good management and control of the company. To this end, they will be obliged to demand and have the right to obtain the appropriate and necessary information from the company or external advisors that will help them fulfil their obligations. Faced with such an extraordinary and unpredictable situation like the current one, it will be necessary to increase the number of meetings of the administrative body without adhering to the minimum frequency of quarterly meetings stipulated in the Law on Capital Companies. Also, by extension, an increase in the number of meetings of the various committees or working groups reporting to the Management Body should broaden the basis for participation in decision-making. The more people are involved in the action plans established by the Management Body, the greater the motivation and enthusiasm for their acceptance and monitoring by the whole company.

The new regulations recently approved by article 40 of Royal Decree-Law 8/2020 offer the possibility of holding meetings by videoconference or multi-conference, even if the Articles of Association did not provide for this; this may force many companies to hold more efficient meetings than before. Such online resources will undoubtedly be valuable to strengthen decision-making and “close” the approval and signing of minutes more quickly and provide greater traceability and record-keeping of the decisive agreements adopted.

Can we emerge stronger from this crisis? Let us be optimistic: this situation forces us to make decisions under great uncertainty, giving managers new skills and experience that will be very valuable in the future. Of course, it will not be easy to make decisions without taking risks, but let us not forget that the Law on Capital Companies confers a certain immunity to decisions taken at the discretion of directors, provided they are taken without personal interest, with sufficient information and following an appropriate procedure to protect the company’s interests.

This crisis may also constitute a reinforcement of the business ethics that company directors must pursue, always prioritising the greatest good or the least possible evil in the face of the moral dilemmas they face in different areas (insolvency situations, crisis labour proceedings, etc.). Decision-makers should always put themselves in the place of the person who may be harmed by the measures taken. The statement of non-financial information can be more than an ideal instrument for stakeholders to judge the effective assumption by the company of the values of business ethics and Corporate Social Responsibility policies.

Finally, let us not forget that good corporate governance prioritises the interests of society as a whole (customers, suppliers, employees, educational communities, research centres and NGOs) over the interests of shareholders, which will lead to the adoption of increasingly consistent Corporate Social Responsibility policies and the active and voluntary integration by companies of solidarity policies for social improvement, whether it is a large listed company or a small SME in the food sector that wishes to channel its surpluses for social purposes. The adoption of such policies should not be seen as an expense, but as measures that will enhance the good reputation of the company and the trust that stakeholders will be placed in it, as well as sending a powerful subliminal message to the market: that the company is working for the long term.

I would take on board the recent words of the CEO of a large multinational to affirm that it should not be unreasonable for a company to submit annual accounts for approval by the General Meeting with stable or even decreasing financial results compared to the previous year if broader layers of society have benefited. Before the pandemic, it might seem utopian, but the current circumstances will make it possible to reset the system. For, as Robert Bosch said, “It is always better to lose money than to lose confidence”.

Source: https://es.andersen.com/es/publicaciones-y-noticias/buen-gobierno-corporativo-y-responsabilidad-social-corporativa-durante-la-crisis-sanitaria-del-covid-19.html