Document Type

Article

Publication Title

The Journal of Corporation Law

Volume

46

Publication Date

2021

Keywords

COVID-19, corporate governance, ownership structure, varieties of capitalism, human capital, relational finance, free cash flow, nationalism, economic protectionism, inequality, climate change, stakeholder theory, shareholder primacy, evolutionary theory of corporate law, Green New Deal, behavioral

Abstract

With the pandemic caused by the novel coronavirus SARS-CoV-2 raging around the world, many countries’ economies are at a crucial juncture. The COVID-19 external shock to the economy has the potential to affect corporate governance profoundly. This Article explores its possible impact on comparative corporate governance. For an economy to operate successfully, a society must first find a politically sustainable social equilibrium. In many countries, historical crises—such as the Great Depression and World War II—have resulted in a reconfiguration of corporate governance institutions that set the course for generations. While it is not yet clear whether COVID-19 will have a similar effect, it is possible that it will change patterns of what kind of firms are—from an evolutionary per-spective—likely to survive, and which ones are not. We argue that to some extent, it will accelerate ongoing trends, whereas in other areas it put corporations on an entirely new course. We observe three trends, namely the need for resilience, a growth of nationalist policies in corporate law, and an increasing orientation toward “stakeholder” interests. First, firms will have to become resilient to the crisis and consequently long-term oriented. Corporations that are not operating merely on an arm’s length capital market basis but are integrated into a network, generated by core shareholders, state ownership, or bank lending may be more likely to survive. In addition, firms are beginning to interact with their workforce differently in their attempts to maintain what could be called “healthy hu-man capital.” Second, we are likely to see a resurgence of nationalism in corporate gov-ernance to ensure that foreign ownership and interconnected supply chains do not put na-tional security at risk. Third, the existing critiques of inequality but also climate change awareness will accelerate the trend toward a broadening of corporate purpose toward “stakeholderism” and public policy issues. As in the past years, institutional investors act-ing as “universal owners” will play a role in shaping this trend.

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