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A time for boardrooms to hold their nerve

05 November 2020

The opportunity is out there – created by the havoc of COVID‑19, underlined by the impending threat of climate change and encouraged by the Government and some of our more farsighted business leaders – to ‘build back better’.

But this is going to require effective governance in businesses large and small and, in some of the more exposed sectors, a willingness to work through difficult conditions and to find new business opportunities, says Chapman Tripp partner Roger Wallis on the release of the firm’s 2020 edition of New Zealand Corporate Governance – Trends & Insights.

The Supreme Court’s recent judgment in Debut Homes is unfortunate in this context as it may force salvageable companies into formal insolvency processes where the best interests of the company’s shareholders and creditors would have been served by an informal workout. We put the decision into perspective as we consider many of the commentaries have been unduly alarmist.Roger Wallis, partner

“This is a time for boardrooms, and the organisations they serve, to hold their nerve. The Government acknowledged the challenges to directors of trading in volatile economic conditions through the temporary director duty safe harbour provisions, now expired.

“To some extent, the safe harbour intervention was a symbolic statement of support from the Government to prevent boards from becoming immobilised by a perceived exposure to unacceptable risk. The country cannot afford that and as we explain, the risk profile attached to being a director is essentially unchanged, as all of the usual protections and defences remain in place.”

Chapman Tripp’s 2019 governance publication highlighted a debate on contemporary theories relating to whether primacy should be accorded to shareholders or stakeholders.

The COVID crisis provided a working example of this tension as boards grappled with whether they should apply for the Government’s wage subsidy and then – if the business damage was less than anticipated – whether they should return the money, improving the Crown’s balance sheet at the expense of the company’s, and indirectly their shareholders’.

Other COVID-19 effects will be more enduring:

  • greater use of remote communications technologies (they clearly can have cost and efficiency advantages but do not remove the need for face-to-face engagement where practicable, especially for strategic decision-making), and
  • a surge of Millennials into the share market (we think this will reinforce existing pressures on businesses to put the customer first, improve their work culture, reduce their carbon footprint and adopt sustainable business models).

 

Read our Corporate Governance – Trends & Insights publication

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