The Differential Health, Economic and Financial Effects of the COVID-19 Crisis and the Impact of the Crisis on Boards of Directors and Regulators

GCGC/ECGI Global Webinar Series

This article was first published on the Oxford Business Law Blog on 8 June 2020

By Jennifer Hill (Monash University) 

In April 2020, Monash University hosted the first session of the ECGI/GCGC 24 hour global webinar on The COVID-19 Crisis and Its Aftermath: Corporate Governance Implications and Policy Challenges.

The Monash University session, which I chaired, comprised two panel discussions of key corporate governance and financial issues relating to the COVID-19 crisis. The panel discussions can be viewed here.

Panel 1: ‘The differential health, economic and financial effects of the COVID-19 crisis’

The COVID-19 pandemic represents the second so-called ‘global’ crisis in little over a decade. Yet, although the 2008 financial crisis is typically described as ‘global’, its effects were much more severe in some parts of the world than others. For example, the impact of the 2008 crisis was far greater in North American and Europe than in Australia and many parts of Asia. COVID-19 represents a more complex type of crisis, due to its two-track nature involving both health and economic activity. However, it too has the potential to produce radically different outcomes across jurisdictions. Indeed, we are already witnessing such divergence.

The main goal of the first panel was to consider how those two features—health and economic activity—will interact in determining how well (or badly) particular jurisdictions will emerge from the COVID-19 crisis. One of the panelists, Professor Stephen Turner, who is Co-Head of Infection and Immunity Program; Head of Microbiology at the Monash University’s Biomedicine Discovery Institute, explored this issue from the health perspective. He examined key determinants of differential health effects, such as the strength of a jurisdiction’s health system and commitment to effective social mitigation policies (including social distancing, home isolation, travel bans, enhanced testing and contact tracing).

The other panelists examined the likely economic consequences of the COVID-19 crisis compared to the 2008 global financial crisis.  These panelists were Dr John Laker (member of the Experts Panel of the International Monetary Fund (IMF) and former Chair of the Australian Prudential Regulation Authority (APRA)), Dr Malcolm Edey (former Assistant Governor of the Reserve Bank of Australia and former Chair of the OECD Financial Markets Committee and member of the Basel Committee on Banking Supervision), and Diana Nicholson, senior M&A partner, King & Wood Mallesons.

The panelists considered a range of factors which protected Australia from the worst effects of the 2008 global financial crisis. They noted that, although there are a number of similarities between the COVID-19 crisis and the 2008 crisis, there are also important differences. One such difference is that, whereas the global financial crisis involved demand disruption, which could be mitigated by public spending, the COVID-19 crisis can be viewed as primarily a supply shock, suggesting that it cannot be addressed in the same way as the earlier crisis. The panelists also examined the potential threat to national sovereignty if some countries emerge from the crisis in a much stronger economic condition than others and stressed the importance of supra-national regulatory cooperation in the areas of both health and economic activity.

Panel 2: ‘The impact of the COVID-19 crisis on boards of directors and regulators’

The second panel considered the implications of the COVID-19 crisis for directors and corporate regulators. In particular, the panel considered the tension which has existed in corporate law from the time of Berle and Means between a private and public theory of the corporation. This tension became much more apparent in Australia as a result of both the COVID-19 crisis and the high profile 2019 Banking Royal Commission.

Priscilla Bryans, who is a senior corporate governance partner at Herbert Smith Freehills examined the duties of directors under Australian law in the light of the COVID-19 crisis. She stated that other developments, such as the Banking Royal Commission and debates around climate change and sustainability, had already weakened the idea that directors’ primary duty is to maximise profits for shareholders and that the COVID-19 crisis would continue this trend.

Two prominent Australian company directors, Kevin McCann AM and Sylvia Falzon, discussed some of the unique challenges facing company directors during the COVID-19 crisis in view of the growing tension between public and private interests in the corporate sphere. The second panel also emphasised the unprecedented role that the business conduct regulator, the Australian Securities and Investments Commission (ASIC), has played in relation to the current crisis. One of the panelists, ASIC Commissioner John Price, considered that the crisis would increase the ongoing debate about public versus private interests and responsibilities and that the concept of ‘fairness’ would be a key aspect of this debate.

The second panel also examined the high degree of corporate collaboration which has occurred during the COVID-19 crisis between traditional competitors in certain Australian industries. The competition regulator has, for example, provided a number of urgent interim authorizations, permitting companies in particular sectors (eg supermarkets, banks, medical technology companies) to effectively engage in cartel conduct.

Finally, the second panel discussed a range of situations in which difficult prioritisation decisions, such as bail-out decisions, would be necessary in both the public and private sectors. It was noted that sustainability and benefits to the community of particular businesses would be critical factors for any future government bail-out decisions.

Jennifer G. Hill is the Bob Baxt AO Professor of Corporate and Commercial Law and the director of the Centre for Commercial Law & Regulatory Studies (CLARS) at Monash University, Australia.