The future of corporate governance in capital markets after the COVID-19 crisis[1]

The report presents indicators and analysis of the capital structure, corporate activities, the use of market financing, corporate ownership structures and payment policies over the past two decades. It examines regulatory and financial support measures related to the COVID-19 crisis in the field of corporate governance and corporate finance. The report also presents key indicators related to the use of public equity and corporate bond markets by the non-financial corporate sector during 2020, and the central bank's policy regarding corporate bond markets. Based on an analysis of structural weaknesses in both public equity and corporate bond markets around the world, the report focuses on the role that capital markets can play on the path to recovery and sustainability.

The future of corporate governance in the capital markets after the COVID-19 crisis provides a fact-based overview of the events in the global capital markets leading up to and including the COVID-19 crisis. It reflects the impact of the crisis on the use of capital markets and the introduction of temporary corporate governance measures. Although the structural effects of the crisis on capital markets and its relationship to corporate governance have yet to be fully understood, this OECD report presents trends that can be used to shape policies that will support the recovery, and formulated key policy ideas that will serve as a guide for analysis "The Principles of Corporate Governance of the OECD".

Final Conclusions of the OECD Corporate Governance Committee

The sustainable recovery of the corporate sector is a key policy priority after the COVID-19 crisis. The corporate sector plays a central role in overcoming the health crisis through research and innovation, as well as by ensuring a stable supply of goods and services at a time of disruption of global value chains. At the same time, the pandemic has also forced the corporate sector to adapt and may have caused long-term structural changes.

Some business models will be phased out or changed in nature, while others will be based on new opportunities for innovation and growth. Although the crisis may trigger such a dynamic transformation process, there are also concerns that parts of the corporate sector that were under-capitalized before the crisis will come out with even higher levels of debt, and that the increased volume of production resources will be tied up in non-viable companies, slowing down overall investment and economic growth.

Based on the rich national experience of adapting corporate governance structures to the developing conditions of the crisis and based on the report "The Future of Corporate Governance in Capital Markets after the COVID-19 crisis", which provides a scientifically based overview of events around the world, the OECD Corporate Governance Committee highlights the following messages:

• A common policy goal should be to facilitate access to public stock markets for healthy enterprises. This will help strengthen the balance sheets of viable corporations and the emergence of new business models that are necessary for a sustainable recovery and long-term sustainability in the event of future shocks.
  
  
• From the point of view of inclusiveness, a well-functioning public equity market should also provide ordinary households with the opportunity to directly or indirectly participate in capital income, providing them with additional opportunities to manage savings and plan for retirement.
  
  
• During a crisis, there are usually calls for stricter standards of corporate governance, compliance and disclosure in the non-financial sector. The current crisis is no exception. When assessing adaptation to the post-COVID-19 situation, policy makers and regulators should carefully assess the long-term costs and benefits of interventions and avoid excessive regulation that may prevent companies from becoming or remaining public.

Force public stock markets to support recovery and long-term sustainability

Stock markets play a key role in providing companies with equity capital that gives them the financial stability to overcome temporary downturns, while simultaneously fulfilling their obligations to employees, creditors and suppliers. At the same time, since 2005, more than 30,000 companies around the world, especially in the United States and Europe, have been excluded from the list of stock exchanges. These exceptions were not accompanied by new listings, which led to significant net losses of public companies.

This means that, compared to the financial crisis of 2008, much fewer companies were able to access this important source of market financing. In particular, the structural decline in IPOs of small companies means that most of the small growing companies do not have direct access to public equity financing.

Solving the problem of excessive risk in the non-financial corporate sector

At the beginning of the COVID-19 crisis, there were already widespread concerns about the decline in the quality of constantly growing shares of corporate bonds in circulation.

The growing use of bond financing has highlighted the role of corporate bonds in corporate governance and the conditions that bondholders can set, for example, in relation to the payment of dividends, capital structure and disclosure of information. In particular, in markets where the use of corporate bonds has only recently become a significant source of corporate financing, the regulatory framework should require companies to disclose information about whether they are exposed to a significant risk of non-fulfillment of their obligations.

Given the severe economic consequences of the pandemic and the growth of insolvency in industries such as air transport, hospitality, real estate and related sectors, it is extremely important to ensure the rational management of insolvency and restructuring processes that allow viable companies to effectively and quickly recover from insolvency and the successful restructuring of viable ones.

Drawing on the experience of dealing with liquidity and solvency issues during the pandemic, policy makers and regulators should take the opportunity to analyze the overall effectiveness of their bankruptcy system and the extent to which market-based measures can serve as an effective practice for preserving, restructuring and redistributing capital.

Given that the share of under-capitalized, non-viable firms will increase after the pandemic, it is necessary to re-review the temporary measures taken to ensure that resources are not permanently tied to inefficient companies.

Conclusions and recommendations based on the results of the report:

Steps should be taken to address any structural weaknesses in the stock market ecosystem that prevent smaller, growing companies from entering the stock market. Policy makers and regulators should take a proactive approach to reducing the cost of listing and ensure that there are no unnecessary barriers or uncertainties from regulatory and supervisory authorities for companies that want to use new alternative listing methods, such as direct listings and the creation of books on the Internet.

To balance the current attention of institutional investors to large listed companies, steps should be taken to improve the visibility and attractiveness of small growing companies, for example, through special analyst outreach programs and specialized incubator programs to prepare growing companies for capital market financing.