Coronavirus and the Corporate Governance

SÉRVULO IN THE PRESS 16 Mar 2020 in Jornal Expresso

The evolution of this pandemic outbreak, that causes so many acute concerns to companies and to the economy in general, raises important challenges in terms of coporate governance.

First of all, and in this particularly demanding situation, it is clear that fiduciary duties from administrators extend not only to the protection of shareholders' interests, but also to the protection of workers and the community in general. It is thus confirmed that companies must be governed according to the purpose (corporate purpose) of taking care of those who are affected by their activity. The importance of the corporate purpose, which is the basis of several recent international positions (of which I highlight the Future of Business project, in the United Kingdom, and the Declaration of the Business Roundtable, in the USA), acquires, in this context, an undeniable relevance.

As a fulfillment of these duties at the current scenario, it is very important that the board of directors adopts and enforces contingency plans according to the Health authorities' instructions. Contingency plans must be faced as organizational resources to shape and adjust according to the object and the moment of its enforcement. Therefore, they must be adapted to the specificities of each law firm (including the use of telework to the appropriate measure) and must be updated whenever necessary, namely as a result of the evolution of the pandemic outbreak or of the Directorate-General of Health (DGS) guidelines. It is also necessary to ensure the disclosure of contingency plans to employees, through a precise and comprehensible information.

For the full and rigorous enforcement of the contingency plans, it is absolutely imperative not only the performance of business leaders (according to the “tone at the top” maxim), but also the culture of each law firm, in transversal and continuous terms, from the top down. Each employee must set the example of civic responsibility that the company and its stakeholders expect.

On the other hand, this epidemic outbreak appears in the period of the annual general meetings. In this context, it is important to note that the Decree Law 10-A/2020 allow (but do not compele) that the annual general meetings of commercial companies, associations or cooperatives to be postponed until June 30, 2020. If the general meetings are absolutely unavoidable, it is important to recommend the use of electronic voting by correspondence. This is a legislated way of voting used for more than twenty years. For this reason, it corresponds to a tested method of exercising the right to vote, that should be strongly encouraged and and whose use in this context. In cases that is unavoidable of postponable general meetings, it is important to recommend the use of electronic voting by correspondence. This is a form of voting provided for in the law for more than twenty years. To that extent, it corresponds to a much-tested method of exercising the right to vote and whose use in this context should be strongly encouraged.

In addition, there are some good recommended practices to be adopted at the general meeting, if their implementation is urgent, namely the disinfection of the facilities and materials used, the distance of the places assigned to the participants and the requirement of adequate hygiene procedures for the participants to access the place where the general meeting will take place.

Finally, regarding the governance of financial companies, it will be important to keep the business continuity plan active as part of the management system risk. This plan must include an evaluation of operational risks and the capacity to continue to keep operating in an orderly manner, as well as the most appropriate recovery strategy, as the CMVM recently recalled.

In these times of uncertainty, we find support in the conclusion that the conscientious and diligent action of Portuguese companies, guided by a steady purpose and by principles of healthy governance, will certainly be decisive for overcoming the current pandemic outbreak, for the benefit of the common good.

Read the full article in Expresso here.