Corporate governance has fundamental role in times of crisis, specialist says

The COVID-19 pandemic we are experiencing is causing numerous problems for society. As well as the public health problem, there are severe economic impacts, which are already being felt in Brazil. Professor Joaquim Rubens Fontes Filho of the FGV´s Brazilian School of Public and Business Administration (FGV EBAPE) recently talked about the importance of corporate governance in times of crisis as part of FGV’s “Impacts of COVID-19” web series.

According to him, companies’ results are already being drastically impaired and this is also reflected in the stock exchange, where share prices have fallen more than 40% in two months in Brazil.

“Stock exchanges do not just involve moves by large speculators. Above all, they are important forums for companies to obtain resources for new projects, to develop new products and expand, so they can remain competitive. At a time when their long-term results may be impaired, it is natural for their share prices to collapse, as is currently happening in Brazil,” Fontes Filho explained.

He believes that this movement will continue for some time, but companies need to be prepared for the subsequent recovery. He also stressed that organizations should be prepared to properly maintain the institutional relations that were built up over time between market players and society.

Fontes Filho said that corporate governance has a fundamental role to play at this moment, as it deals with relationships between business owners and with society. He noted two important groups in this context. The first consists of small investors, who will be severely affected by the crisis, as they have less chance to diversify their investments. He said that the departure of these agents could cause liquidity problems for companies, which will find it much harder to raise resources. Another important group consists of employees, who are key stakeholders for a company.

“Corporate governance means equal treatment of partners and transparent relations. So, it is important for controlling shareholders, board members and executives to have good liaison channels and to clearly explain to society and their small shareholders what is happening and what is being done to improve their company’s situation, at least in the medium term,” he said.

The professor ended by saying it is essential for these good practices to be pursued and for market stability and companies’ access to resources to be rebuilt or at least maintained.