With significantly fewer companies using public equity markets, OECD calls for strengthening of corporate governance policies and frameworks.
The Organisation for Economic Cooperation and Development (OECD) has issued a new report warning that the number of undercapitalised and underperforming firms will likely rise and remain high amid the Covid-19 pandemic without an effective policy response.
The report provides an overview of developments in capital markets globally leading up to the Covid-19 crisis, documenting the impact of the crisis on the use of capital markets and the introduction of temporary corporate governance measures.
It notes that the pandemic has exacerbated existing structural weaknesses in the corporate sector and capital markets, which has led to an increasing amount of productive resources being tied up in non-viable companies, dragging down investment and economic growth.
The report says significantly fewer companies – particularly new companies – are using public equity markets and a large portion of the money raised in 2020 went to fewer and larger companies.
“Substantial financial resources will be needed for investment both to support the recovery from the Covid-19 crisis and to further strengthen resilience to possible future shocks,” the report says, adding that stronger corporate governance policies and frameworks can help existing and new companies access the capital they will need.
“A strong corporate governance framework is essential for a well-functioning capital market,” the OECD said.
The report outlines four priorities for policymakers:
- Adapt corporate governance frameworks to address weaknesses revealed by the pandemic, such as the management of health, supply chain and environmental risks, as well as issues related to audit quality, increased ownership concentration and complex company group structures.
- Facilitate access to equity markets for sound businesses, to help strengthen balance sheets of viable corporations and the emergence of new business models.
- Improve the management of ESG risks, notably by developing comprehensive frameworks for producing consistent, comparable, and reliable climate-related disclosure.
- Ensure insolvency frameworks are fit-for purpose and support recovery and resilience.
Also released is a new corporate governance factbook, providing information about the institutional, legal and regulatory frameworks for corporate governance across 50 jurisdictions worldwide.
The factbook can be used by governments, regulators and the private sector to compare their own frameworks with those of other countries and to get information on the practices in specific jurisdictions.
The latest edition includes new material on the global market landscape, including how capital markets have evolved during the Covid-19 pandemic, new coverage of the oversight of audit, proxy advisory services, and gender balance on boards, among other updates.