Corporate Governance: Challenges during and Post Covid 19

Abstract

Issues related to corporate governance (CG) came into prominence in the USA with the separation of control from ownership, highlighted by Brealey and Means in 1932.1 At that time equity (risk capital) in most companies was provided by dispersed shareholders. These shareholders had neither the capability nor the interest in controlling the use of the assets held by the company. Therefore, professional managers enjoyed 100 percent control over assets with trivial rights on the cash flows generated by the use of those assets. As a result, the agency problem arises in CG. Like an agent, the manager expropriates the shareholders’ wealth to enrich himself using the residual decision making powers.2 In a principal-agent relationship, a complete contract cannot be written as all contingencies cannot be foreseen; even if anticipated, they cannot be articulated unambiguously. In a business, contingencies arise daily. Therefore, the manager enjoys huge residual rights. CG issues come to focus again and again when corporate frauds and scandals are reported. CG practices evolve to protect the interest of shareholders. The basic premise, which is that the manager enriches himself by expropriating shareholder’s wealth unless effectively monitored, continues.